By Erin Marie Daly
Law360, New York (May 18, 2010) — The unsecured claims estate representative for bankrupt Teligent Inc. has won a bid to block K&L Gates LLP from accessing confidential settlement documents related to a former CEO’s departure, which the firm had hoped to use in defending a related malpractice suit.
In a judgment entered Monday, Judge P. Kevin Castel of the U.S. District Court for the Southern District of New York upheld a bankruptcy court order protecting the status of the mediated settlement as privileged.
Savage & Associates PC, the unsecured claims representative, and Mandl, a former CEO who suffered an adverse judgment of $12 million over a loan he failed to repay the company following his departure in 2001, had both fought K&L Gates’ attempts to overturn the order. In late November, K&L Gates appealed an Oct. 13, 2009, ruling of U.S. Bankruptcy Judge Stuart Bernstein of the Southern District of New York that said the firm lacked standing to protest the confidentiality protections of the settlement agreement, but could potentially have access to the documents it requested if there was no other way to acquire the
The dispute began in January 2008, when Teligent’s unsecured claim estate was awarded a $12 million judgment against Mandl for his failure to repay a loan he received from the company’s original shareholders pursuant to his employment agreement.
Mandl and the representative went on to forge a mediated settlement deal under which Mandl agreed to sue his attorneys at K&L Gates, accusing them of botching his defense of the disputed loan in a lawsuit in the Superior Court of the District of Columbia. He also agreed to pay about $6 million to the estate plus one-half of the proceeds, if any, that he might win in that malpractice action.
The district court case stems from Judge Bernstein’s ruling protecting the status of the mediated settlement. K&L Gates had asked the district court to overturn that order on the grounds that it might find evidence of collusion or other misconduct by Mandl and the representative in the mediation that could assist the firm in its defense in the D.C. action.
K&L Gates also contended that Mandl’s obligation to pay to the representative the D.C. proceeds constituted an improper assignment of the malpractice claim against the firm, and wanted the district court to void the settlement agreement itself.
In his ruling, Judge Castel disagreed with K&L Gates’ contention that the bankruptcy court had inappropriately applied the standard for compelling disclosure of work product, and that the determination of whether confidential mediation materials may be disclosed should be determined on a case-by-case basis.
Instead, the judge said, the bankruptcy court had correctly required that the firm demonstrate a “special need” for the information and show that the need for disclosure outweighed the interest in protecting confidentiality.
The bankruptcy court had also correctly concluded that the firm “plainly failed to meet its burden” because it had failed to explain why the communications it requested were “critical” as opposed to possibly relevant, Judge Castel said.
“In weighing the competing interests, the bankruptcy court did not exercise its discretion in an unbridled manner and its conclusion that K&L failed to meet its burden was not clearly erroneous,” the judge said.
K&L Gates is represented in this matter by Williams & CConnolly LLP.
Savage & Associates is represented by Denise Savage.
Mandl is represented by Hall Lamb & Hall PA.
The case is In re: Teligent Inc., case number 09-cv-09674, in the U.S. District Court for the
Southern District of New York.
–Additional reporting by Nick Malinowski