In Re: Bestwall LLC
Argued March 15, 2022
Before: JORDAN, KRAUSE, and PORTER, Circuit Judges
(Filed August 24, 2022)
Garland S. Cassada Richard C. Worf, Jr. Robinson Bradshaw & Hinson 101 North Tryon Street – Suite 1900 Charlotte, NC 28246
Noel J. Francisco [ARGUED] C. Kevin Marshall Jones Day 51 Louisiana Avenue NW Washington, DC 20001
Gregory M. Gordon Jones Day 2727 North Harwood Street – Suite 600 Dallas, TX 75201
Beth E. Moskow-Schnoll [ARGUED] Ballard Spahr 919 North Market Street – 11th Fl. Wilmington, DE 19801
Burt M. Rublin Ballard Spahr 1735 Market Street – 51st Fl. Philadelphia, PA 19103 Counsel for Armstrong World Industries, Inc. Asbestos Personal Injury Settlement Trust; Celotex Asbestos Settlement Trust; DII Industries, LLC Asbestos PI Trust; Flintkote Asbestos Trust; Pittsburgh Corning Corporation Personal Injury Settlement Trust; WRG Asbestos PI Trust; Federal-Mogul Asbestos Personal Injury Trust; Babcock & Wilcox Company Asbestos PI Trust; United States Gypsum Asbestos Personal Injury Settlement Trust; and Owens Corning / Fibreboard Asbestos Personal Injury Trust
Daniel K. Hogan [ARGUED] Hogan McDaniel 1311 Delaware Avenue Wilmington, DE 19806 Counsel for Matching Claimants
JORDAN, Circuit Judge.
As part of its bankruptcy proceedings in North Carolina, Bestwall LLC wanted access to data owned by ten trusts created to process asbestos-related claims against other companies. That data is held by the trusts’ claims processing agent, which is located in Delaware and opposed Bestwall‘s request. The Bankruptcy Court sided with Bestwall and authorized the issuance of subpoenas. Once Bestwall served those subpoenas, however, the trusts spoke up. They asked the U.S. District Court for the District of Delaware to quash the subpoenas, repeating the same arguments that had been made in the Bankruptcy Court by their claims processing agent. Certain asbestos claimants whose information was in the database also joined in the motion to quash. The arguments presented by the trusts and the claimants were evidently more persuasive to the District Court than they had been to the Bankruptcy Court, as the District Court quashed the subpoenas.
Bestwall has now appealed that order and rightly invoked the doctrine of collateral estoppel. We will therefore reverse and remand with instructions to enforce the subpoenas as originally ordered.
I. BACKGROUND
In November 2017, Bestwall filed for Chapter 11 bankruptcy relief in the U.S. Bankruptcy Court for the Western District of North Carolina. In re Bestwall LLC, 606 B.R. 243,
To prove its theory, Bestwall wants to inspect the claimant data from other asbestos settlement trusts, so that it can compare the list of individuals who have filed claims against those trusts with the list of those who have filed claims against it. To that end, it made a motion in the North Carolina
Those Trusts were all established by corporate debtors-in-possession that, like Bestwall, sought to resolve their asbestos liabilities in bankruptcy.4 The Trusts exist to process
Seven of the ten Trusts eventually formed the Facility to administer and process asbestos claims on their behalf.5 All ten Trusts have “claims processing agreements” with the Facility that make them its “clients” (J.A. at 443-44, 447), and they entrust it to collect the claimants’ confidential information so it can process the claims. Although the claimant data belongs to the Trusts, the Facility considers itself the “custodian” or “steward” of the data in its possession. (J.A. at 445, 447.) Like the Trusts, it takes the confidentiality of that data seriously. According to its Chief Operating Officer, “[p]rotecting the security of these sensitive data is [the Facility‘s] highest operational priority.” (J.A. at 445.) To that end, the Facility has made significant investments in data
When Bestwall filed its Rule 2004 Motion, it served copies on both the Facility and the Trusts.6 Only the Facility appeared and expressed any objections. It represented that the Trusts were “duty bound” to protect the claimant data sought by Bestwall and hence “exercised their ownership of and control over their claims data to protect such data from improper disclosure[.]” (J.A. at 132-33.) But the Facility also asserted that it was the one who received the claimants’ information and that it had its own obligations to preserve the data‘s confidentiality. It asked the North Carolina Bankruptcy Court to deny the Rule 2004 Motion as overly broad and intruding on confidential information or, in the alternative, to order that any production of claimant data be limited to “a random sample of up to 10% of the 15,000 claimants[,]” and be anonymized before being produced to Bestwall or its expert. (J.A. at 154-60, 166.) The Facility noted that its objection “should not be construed to limit or waive any objections the
Following extensive briefing, record development, and a two-day hearing that included argument from the Facility, the North Carolina Bankruptcy Court granted the Rule 2004 Motion. In its order (the “Rule 2004 Order“), it authorized Bestwall to serve subpoenas on the Facility “with respect to” the Trusts and to serve subpoenas on the Trusts themselves, “if necessary to effectuate this Order.” (J.A. at 51-52.) It also imposed several measures to protect the confidentiality of the data, including a requirement of post-production anonymization by Bestwall‘s expert. While it did not adopt the Facility‘s requested restrictions of random sampling and pre-production anonymization, it did establish procedures for “Matching Claimants” to file motions to quash.7
Bestwall proceeded to serve the subpoenas in Delaware on the Facility and each of the Trusts. Two weeks later, the Trusts – but not the Facility – moved in the District Court in Delaware to quash or modify the subpoenas. They made the same arguments about overbreadth and confidentiality that the Facility had made in the North Carolina Bankruptcy Court, and
The District Court granted the motion to quash.8 It observed that Bestwall‘s request for claimant data bore many similarities to the request made in a previous case, In re Owens Corning, 560 B.R. 229 (Bankr. D. Del. 2016), in which the bankruptcy court in the District of Delaware had placed conditions on access to asbestos-related claimant data. The Court found that “Bestwall ha[d] demonstrated a legitimate purpose in requesting the Claimant data” and that “the protections set in place by the [North Carolina] Bankruptcy Court will go a long way toward protecting Trust Claimants’ sensitive data[,]” but it nonetheless held that “additional safeguards” were necessary to match the ones granted in In re Owens Corning, including the “appointment of an independent facilitator to oversee production.” (J.A. at 21.) It quashed the subpoenas “without prejudice to [Bestwall‘s] right to seek reissuance of the subpoenas seeking a narrower document production that is consistent with the protections afforded by [In re Owens Corning].” (J.A. at 22.) In response to a motion from the Trusts to clarify the scope of its order, the District Court issued a second order adopting the Trusts’ position that any subpoenas needed to include random sampling and pre-production anonymization, in addition to the In re Owens
II. DISCUSSION
Bestwall argues, among other things, that the District Court committed legal error by not applying collateral estoppel, or, as it is also called, the doctrine of issue preclusion, to hold the Trusts and the Matching Claimants to the outcome of the subpoena litigation in the North Carolina Bankruptcy Court. In particular, Bestwall points out that the Facility – which guards the confidentiality of claimant data on behalf of the Trusts – actively opposed the Rule 2004 Motion in the bankruptcy proceedings. Because of that, says Bestwall, the Trusts and the Matching Claimants should not have been permitted to reassert the same arguments in the District Court that were rejected in the earlier proceedings. On the record here, we agree.
A. Jurisdiction and Standard of Review
The District Court had jurisdiction over the motion to quash. See
The Matching Claimants nonetheless contend the order was not final because it quashed the subpoenas without prejudice to Bestwall‘s right to seek enforcement of different, narrower subpoenas. But, as the very statement of that argument confirms, the District Court granted the motion to quash with prejudice to Bestwall‘s right to enforce the originally issued subpoenas. We therefore have jurisdiction to hear Bestwall‘s appeal.
We review for abuse of discretion the District Court‘s decision to quash the subpoenas. Wedgewood Vill. Pharmacy, Inc. v. United States, 421 F.3d 263, 268 n.5 (3d Cir. 2005). Such a decision will be disturbed only if it “rests upon a clearly erroneous finding of fact, an errant conclusion of law[,] or an improper application of law to fact.” Id. (quoting NLRB v. Frazier, 966 F.2d 812, 815 (3d Cir. 1992)). “Application of
B. The Arguments Are Not Forfeited
Before turning to the question of collateral estoppel, we first consider the Trusts’ and the Matching Claimants’ assertion that Bestwall forfeited any right to address that issue by failing to raise it in the District Court.11 As a court of review, we generally decline to consider arguments that were not first presented to the court whose ruling is before us. Simko v. U.S. Steel Corp., 992 F.3d 198, 205 (3d Cir. 2021), cert. denied, 142 S. Ct. 760 (2022). But preserving an argument “does not demand the incantation of particular words; rather, it requires that the lower court be fairly put on notice as to the substance of the issue.” Nelson v. Adams USA, Inc., 529 U.S. 460, 469 (2000). Although Bestwall did not use the words “issue preclusion” or “collateral estoppel” in opposing the motion to quash, its arguments in the District Court nonetheless advanced the same preclusion theory it pursues before us, namely, that the North Carolina Bankruptcy Court‘s ruling is legally binding on the Trusts and the Matching Claimants.
The Matching Claimants, too, were on notice of Bestwall‘s position that the motion to quash was an improper effort to relitigate the Rule 2004 Motion. In fact, Bestwall objected to the joinder in the motion to quash by one group of claimants – a group that had also participated in the North Carolina Bankruptcy Court proceedings – on the grounds that the joinder was “yet another collateral attack” on the Rule 2004 Order because the claimants had “had every opportunity to object to the [Rule 2004] Motion[.]” (D.I. 18 at 2.) And, in any event, none of the Matching Claimants joined in the motion to quash until it was fully briefed and under consideration, so they cannot fairly complain that Bestwall did not preemptively direct its arguments at them. The collateral estoppel issue is rightly before us.
On the merits, Bestwall argues that issue preclusion bars the Trusts and the Matching Claimants from relitigating the Rule 2004 Motion because the Facility had already represented their interests before the North Carolina Bankruptcy Court and had come up short. Collateral estoppel prohibits a party from relitigating an issue when: “(1) the identical issue was decided in a prior adjudication; (2) there was a final judgment on the merits; (3) the party against whom the bar is asserted was a party or in privity with a party to the prior adjudication; and (4) the party against whom the bar is asserted had a full and fair opportunity to litigate the issue in question.” Doe v. Hesketh, 828 F.3d 159, 171 (3d Cir. 2016).12
Here, the first two elements are clearly met. As to the first element, the disputes in the District Court and the North Carolina Bankruptcy Court turned on the same issues: whether the subpoenas were appropriate and, if so, whether any conditions should be placed on their enforcement. Both courts’ orders addressed the same dataset and the same requested conditions of production – random sampling and pre-production anonymization. See Raytech Corp. v. White, 54 F.3d 187, 191 (3d Cir. 1995) (“To defeat a finding of identity of the issues ... the difference in the applicable legal standards must be ‘substantial.‘“).
Privity exists when a nonparty to the prior action was “adequately represented by someone with the same interests who was a party to the suit.” Taylor v. Sturgell, 553 U.S. 880, 894 (2008) (alteration and internal quotation marks omitted). “Under th[at] ‘adequate representation’ exception” to the principle that issue preclusion cannot be used against nonparties, “the interests of the party and nonparty must be squarely aligned and there must be either an understanding that the party is acting in a representative capacity or special procedural protections must have been in place in the original action to ensure the due process rights of nonparties who might face” preclusion. Nationwide, 571 F.3d at 313.
The exception applies here. First, the interests of the Facility and the Trusts were, and still are, squarely aligned. Both sought to fulfill their duties to protect the confidentiality of the same data, which one possesses and the other owns. Each made the same objections and arguments and sought the very same conditions on production of the data. And seven of the Trusts are members of the Facility, with a trustee of an
Second, the record reflects an understanding that the Facility was acting in a representative capacity with respect to the claimant data. In opposing the Rule 2004 Motion, the Facility held itself out as an entity formed “to administer and process asbestos-related personal injury claims on behalf of” the Trusts and as the “steward” of the Trusts’ information, and it characterized the Trusts as its “clients.” (J.A. at 442-44, 447.) It explained that, although the Trusts owned the claimant data, it received all the claimant submissions, took all necessary precautions to fulfill the Trusts’ obligation to keep the data confidential, responded to subpoenas on the Trusts’ behalf, and took the lead on negotiating confidentiality restrictions on subpoenas to be served on the Trusts. The Facility also sometimes blurred the distinction between itself and the Trusts. (See J.A. at 309 (claiming that Bestwall was “ignor[ing] the trusts’ concerns about invasiveness of this disclosure” (emphasis added)). Compare J.A. at 152 (referring to “any data produced by the Trusts“), with J.A. at 154 (saying that the Facility “would be amenable to producing [certain] data“).) And, as the District Court noted, the Facility‘s opposition to the Rule 2004 Motion “was consistent with its duty under its [agreements] with the Trusts to use its best efforts” to ensure the confidentiality of their claimant data. (J.A. at 10.) It is therefore entirely fair to conclude that the Facility participated in the bankruptcy proceedings as a representative of the Trusts.
The Trusts seek to forestall that conclusion by claiming that the Facility, in opposing the Rule 2004 Motion, “told Bestwall it was not representing the Trusts in the Bankruptcy
In addition, the North Carolina Bankruptcy Court proceedings included appropriate protections for the Trusts’ due process rights. We have observed that “prior notice” to a nonparty “greatly strengthens any argument for preclusion.” Nationwide, 571 F.3d at 313 n.19. The Trusts were given advance notice of the Rule 2004 Motion and had ample opportunity to present their arguments directly, rather than through the Facility. They knew that Bestwall sought subpoenas for their claimant data, and that those subpoenas might well be directed at them. The Trusts could have raised all their objections in the North Carolina Bankruptcy Court, just as they later did in the District Court. They are thus not ill-used by the recognition that their interests were adequately represented by the Facility before the Bankruptcy Court. In short, they were in privity with the Facility.
As to the fourth element – whether the Trusts had a full and fair opportunity to contest the Rule 2004 Motion – the
The Matching Claimants, for their part, argue only that issue preclusion cannot apply to them because Rule 45 entitles them to challenge the subpoenas in the district court “for the district where compliance is required[.]”
Allowing litigants to invoke issue preclusion on a motion to quash is also consistent with the doctrine‘s “dual purposes” of “protect[ing] litigants from the burden of relitigating an identical issue with the same party or his privy” and “promot[ing] judicial economy by preventing needless litigation.” In re Subpoena, 439 F.3d at 746 (quoting Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326 (1979)). On this record, Rule 45(d) poses no obstacle to Bestwall‘s right to invoke collateral estoppel as a counter to arguments previously litigated in the North Carolina Bankruptcy Court.
For the foregoing reasons, we will reverse and remand with instructions to enforce the original subpoenas issued by the North Carolina Bankruptcy Court.