Plant Insulation Company

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MEMORANDUM RE APPOINTMENT OF COUNSEL
FOR COMMITTEE OF UNSECURED CREDITORS 	-1-
UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
In re
PLANT INSULATION COMPANY,
Debtor.
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Case No. 09-31347 TEC
Chapter 11
MEMORANDUM RE APPOINTMENT OF COUNSEL FOR
OFFICIAL COMMITTEE OF UNSECURED CREDITORS
The official committee of unsecured creditors (the Committee)
seeks to appoint Sheppard, Mullin, Richter & Hampton (Sheppard) as
its counsel. 	Timely objection was filed by U.S. Fire Insurance
Company (U.S. Fire), which issued liability policies to Debtor, and
which is a defendant in a pending insurance coverage action brought
by Debtor. 	U.S. Fire contends that Sheppard must be disqualified
from representing the Committee, because the Committee will be
involved in the pending coverage action, and because that action is
substantially related to a previous coverage action in which
Sheppard represented U.S. Fire. 	The court determines that Sheppard
should not be disqualified, because the pending coverage action is
Signed and Filed: August 04, 2009
________________________________________
THOMAS E. CARLSON
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
August 05, 2009
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
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MEMORANDUM RE APPOINTMENT OF COUNSEL
FOR COMMITTEE OF UNSECURED CREDITORS 	-2-
not substantially related to the action in which Sheppard
represented U.S. Fire, and because the Committee is not a party to
the pending coverage action. 	Because it is a close question
whether the two coverage actions are substantially related,
however, the court appoints Sheppard upon the condition that
Sheppard not represent the Committee with respect to any matters
directly related to the pending coverage claims against U.S. Fire.
FACTS
Plant Insulation Company (Plant) sold, installed, and removed
asbestos products. 	From 1978 through the petition date, Plant was
sued by thousands of claimants for bodily injury and wrongful
death, and tendered those suits to its primary insurers. 	The
insurers, claiming exhaustion of the policies, accepted tender and
defended numerous asbestos claims under a reservation of rights.
In January 2006, Plant filed an insurance coverage action entitled
Plant Insulation Co. v. Fireman’s Fund Ins. Co., et al., S.F. Sup.
Ct. No. CGC-06-448618 (the Plant Coverage Action). 	U.S. Fire is a
defendant in the Plant Coverage Action.
Plant filed for chapter 11 bankruptcy relief on May 20, 2009.
On May 29, 2009, the United States Trustee appointed Paul McKenzie,
Joe Radley, Karen Garner, Linda Seiler, and Richard Parker to the
Official Committee of Unsecured Creditors (the Committee). 	Each
member of the Committee asserts an asbestos bodily injury claim
against Debtor, and each is represented by counsel.
1. 	The Committee’s Application to Employ Sheppard
On May 29, 2009, the Committee filed an application
(the Application) to employ Sheppard as its counsel. 	The
Application provides that Sheppard is to perform the following
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1 The three members of the pre-petition committee are Alan
Brayton of Brayton Purcell, David McClain of Kazan, McClain, Lyons,
Greenwood & Harley, P.C., and Jerry Neil Paul, of Paul & Hanley.
Opp. of Informal Asbestos Creditors’ Committee to Debtor’s
Emergency Motion to Modify Automatic Stay at 5:17-19.
2 In June 2003, Sheppard learned that U.S. Fire was one of the
insurers objecting to confirmation of the plan filed in the Western
Asbestos bankruptcy cases. 	Philip Atkins-Pattenson, who led the
Sheppard team in the Kelly Moore Coverage Action, disclosed the
firm’s representation in the Western bankruptcy case to U.S. Fire,
MEMORANDUM RE APPOINTMENT OF COUNSEL
FOR COMMITTEE OF UNSECURED CREDITORS 	-3-
services for the Committee: (1) advise regarding bankruptcy law;
(2) advise with respect to the Committee’s powers and duties in
Debtor’s bankruptcy case; (3) attend Committee meetings; (4) review
Debtor’s financial information; (5) confer with Debtor; (6) assist
in the investigation of Debtor’s acts, conduct, assets,
liabilities, and financial condition; (7) represent the Committee
in all negotiations with Debtor and other parties-in-interest;
(8) represent the Committee in proceedings before this court and
any other court where Debtor’s rights under the Bankruptcy Code may
be affected; (9) advise the Committee regarding Bankruptcy Code
requirements; and (10) advise the Committee regarding any chapter
11 plan.
The Application discloses that Sheppard: (a) represented both
the pre-petition and the official creditors committee in the
Western Asbestos chapter 11 bankruptcy cases; (b) represented the
official creditors committee in the J.T. Thorpe asbestos bankruptcy
case; (c) represented the informal, pre-petition asbestos creditors
committee of Plant; 1 (d) represented witnesses in discovery
proceedings in the Plant Coverage Action; and (e) represented U.S.
Fire in the matter of Kelly-Moore Paint Co., Inc. v. Continental
Ins. Co., et al., San Francisco Sup. Ct. No. 325147 (the Kelly
Moore Coverage Action). 2
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and was advised that U.S. Fire had no objection to Sheppard’s
continued representation of the Western Committee or Sheppard’s
continued representation of U.S. Fire in the Kelly Moore Coverage
Action. 	In June 2003, Sheppard established an ethical wall so that
Sheppard counsel working on the Kelly Moore Coverage Action would
not work on the Western bankruptcy case or have any access to files
or confidential information in that case, and vice versa.
(Application at 7:1-15).
3 Mr. Ahrens does not have any experience advising clients on
questions of insurance law. 	Supp. Ahrens Decl., ¶ 5.
4 The objection is supported by the declaration of Lawrence A.
Tabb, partner in the law firm of Musick, Peeler & Garrett, LLP. The
Musick firm represents U.S. Fire in the Plant bankruptcy case.
MEMORANDUM RE APPOINTMENT OF COUNSEL
FOR COMMITTEE OF UNSECURED CREDITORS 	-4-
The Application states that Sheppard does not presently
represent any of the insurers who are defendants in the Plant
Coverage Action. 	Michael Ahrens, a partner at Sheppard who
specializes in bankruptcy law, 3 would serve as lead counsel for the
Committee. 	Supp. Ahrens Decl., ¶ 5. 	Sheppard expressly agrees
that the court may approve the Application subject to the condition
that Sheppard not advise the Committee on any matters of insurance
coverage. 	Id.
2. 	U.S. Fire’s Objection to the Retention of Sheppard as
Committee Counsel
On June 1, 2009, U.S. Fire filed an objection to the
Application. 4 	U.S. Fire contends that Sheppard has a disqualifying
conflict of interest under California law arising out of Sheppard’s
former representation of U.S. Fire in the Kelly Moore Coverage
Action.
a. 	The Kelly Moore Coverage Action
U.S. Fire issued two primary liability policies to Kelly
Moore covering January 15, 1971 to January 15, 1973, and a primary
policy binder (the Binder) covering January 15, 1973 to February
15, 1973. 	Supp. Tabb Decl., ¶ 12. 	Each of the primary policies
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5 Neither party introduced the primary policies into evidence.
The one-page Binder is attached as Exhibit 1 to the 1st Tabb Decl.
(docket no. 94).
MEMORANDUM RE APPOINTMENT OF COUNSEL
FOR COMMITTEE OF UNSECURED CREDITORS 	-5-
has a limit of $500,000 for each bodily injury claim arising under
the products hazard clause. 	1st Atkins Decl., ¶ 12(a). 5
In October 2001, Kelly Moore, a former manufacturer of
products containing asbestos, sued U.S. Fire and other insurers.
The issues involved in that action include: whether U.S. Fire
properly exhausted the limits of the Binder; whether the Binder was
a validly issued contract; whether the Binder had a limit of
liability separate from the $500,000 per-occurrence limit under the
primary policy; the amount of defense expenses owed by U.S. Fire to
Kelly Moore for the period covered by the Binder; whether a
settlement agreement between Kelly Moore and U.S. Fire from the
mid-1970s concerning “Kel-Tex” claims had released all coverage
under the Binder and the two primary policies; and allocation of
defense costs among Kelly Moore’s primary and excess insurance
policies. 	Goodwin Decl., ¶ 16.
Sonnenschein, Nath & Rosenthal and Luce, Forward, Hamilton &
Scripps initially represented U.S. Fire in the Kelly Moore Coverage
Action. 	1st Atkins Decl., ¶ 6. 	Riverstone Claims Management, LLC
(Riverstone) served as a third party administrator for U.S. Fire
with respect to the claims involved in the Kelly Moore Coverage
Action. 	Id., ¶ 5. 	In late May 2003, Riverstone asked Sheppared to
take over as counsel for U.S. Fire. 	Id., ¶ 4. 	Sheppard served as
lead counsel for U.S. Fire until it was replaced in March 2006.
Id., ¶ 6. 	Philip Atkins-Pattenson served as lead counsel for
Sheppard.
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6 Ms. Noll does not state whether the Vice President of Claims
and the individual responsible for the day-to-day handling of the
Kelly Moore Coverage Action were Riverstone or U.S. Fire employees.
MEMORANDUM RE APPOINTMENT OF COUNSEL
FOR COMMITTEE OF UNSECURED CREDITORS 	-6-
Patricia Noll, presently the Vice President of Claims for U.S.
Fire, states that Sheppard: (a) directed U.S. Fire’s defense of the
Kelly Moore Coverage Action; (b) analyzed insurance coverage issues
in the context of asbestos-related bodily injury claims;
(c) consulted with U.S. Fire personnel; (d) reviewed U.S. Fire’s
internal documents; (e) prepared and represented current and former
U.S. Fire employees in connection with depositions; (f) drafted
discovery responses and dispositive motions; and (g) prepared
liability and settlement evaluations concerning U.S. Fire’s alleged
asbestos-related coverage obligations. 	Noll Decl., ¶ 21. 	Ms. Noll
also states that Mr. Atkins-Pattenson represented U.S. Fire at a
mediation in May 2004, which was attended by “the Senior Vice
President of Riverstone, the Vice President of Claims and the
individual responsible for the day-to-day handling of the Kelly-
Moore matter.” 6 	Id., ¶ 21(h). 	Ms. Noll also states more generally:
U.S. Fire entrusted to Sheppard its confidential
information consisting of, among other things, U.S.
Fire’s litigation strategies, its policies and procedures
concerning interpretation of insurance policy terms
relevant to asbestos related bodily injury claims and
lawsuits, its settlement negotiation policies and
strategies, and the identity of key U.S. Fire decision
makers.
Noll Decl., ¶ 4.
Mr. Atkins-Pattenson paints a different picture of Sheppard’s
representation of U.S. Fire, and of the nature of the information
Sheppard obtained. 	He states that he did not discuss general
litigation strategies, policies, or procedures with anyone at
Riverstone or U.S. Fire. 	Supp. Atkins Decl., ¶ 5. 	The information
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MEMORANDUM RE APPOINTMENT OF COUNSEL
FOR COMMITTEE OF UNSECURED CREDITORS 	-7-
and guidance he received were limited to the discrete issues
presented in the Kelly Moore Coverage Action, primarily whether the
Binder was a valid insurance contract. 	Supp. Atkins Decl., ¶¶ 5-6.
Mr. Atkins-Pattenson worked with Riverstone employees, not U.S.
Fire employees, in the crafting of U.S. Fire’s settlement position,
and the representatives attending the mediation on behalf of U.S.
Fire were Riverstone employees. 	Id., ¶ 7. 	The Riverstone
personnel with whom Mr. Atkins-Pattenson worked have no role in the
Plant Coverage Action, because Riverstone has been replaced as
claims administrator by Crum & Forster. 	Id., ¶ 6. 	Mr. Atkins-
Pattenson dealt primarily with Riverstone and had very little
contact with U.S. Fire employees. 	The only occasion on which he
recalls meeting with a U.S. Fire executive was one brief meeting
with Ms. Noll, at which there was no discussion of U.S. Fire’s
general litigation strategies, policies or procedures, or the
identity of the key U.S. Fire decision makers. 	Id., ¶ 9.
Sheppard was paid in excess of $2.9 million in the Kelly Moore
Coverage Action. 	Noll Decl., ¶ 21. 	When Sheppard substituted out
of that case in 2006, it turned over to successor counsel 260 boxes
of documents that it had generated or received in connection with
the litigation. 	Goodman Decl., ¶ 6.
b. 	The Plant Coverage Action
Industrial Indemnity issued to Plant primary liability
insurance policies for four consecutive one-year periods starting
on January 1, 1958. 	Those policies were assumed by U.S. Fire in
1994. 	Goodwin Decl., ¶ 2.
In January 2006, Plant filed the Plant Coverage Action, in
which it sought declaratory relief against U.S. Fire and other
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MEMORANDUM RE APPOINTMENT OF COUNSEL
FOR COMMITTEE OF UNSECURED CREDITORS 	-8-
insurers. 	The claims and defenses between Plant and U.S. Fire in
that action principally concern whether Plant’s asbestos
liabilities are operations risks that are subject to a “per
occurrence” liability limit under the Industrial Indemnity
policies, and whether Plant lost coverage under theories of waiver,
estoppel, laches, and unclean hands. 	Goodwin Decl., ¶¶ 17, 23.
c. 	Injunction Action Against Sheppard
In August 2007, U.S. Fire filed a complaint against Sheppard
in San Francisco Superior Court to enjoin Sheppard from
representing the informal committee of asbestos creditors of Plant.
United States Fire Ins. Co. v. Sheppard, Mullin, Richter & Hampton,
Case No. CGC-07-466772 (the Injunction Action).
Sheppard filed a motion to strike the complaint under the
California anti-SLAPP statute. 	The trial court found that the
Injunction Action interfered with Sheppard’s right to petition, but
denied the motion to strike on the basis that U.S. Fire showed a
probability of success on the merits of its claim. 	The California
Court of Appeal held that the Injunction Action did not involve
protected activity, and expressly declined to address whether U.S.
Fire had showed a likelihood of prevailing on the merits of its
claim. 	U.S. Fire Ins. Co. v. Sheppard, Mullin, Richter & Hampton,
171 Cal. App. 4th 1617 (2009).
3. 	Hearings on Sheppard’s Application for Employment
This court held two hearings regarding the Sheppard
Application. 	At the first hearing, held on June 1, 2009, the court
denied the Application on an interim basis, noting that the
question presented was a very close one, noting that the court had
insufficient time to study the matter, and noting that Sheppard had
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MEMORANDUM RE APPOINTMENT OF COUNSEL
FOR COMMITTEE OF UNSECURED CREDITORS 	-9-
little time to reply to U.S. Fire’s objection to the Application.
The court stated in substance, “I cannot grant the Application at
this time.” 	The court granted Sheppard’s request for permission to
file a supplemental reply to U.S. Fire’s objection, but stated that
it intended to style Sheppard’s supplemental papers as a motion for
reconsideration, and that the court would not require U.S. Fire to
respond to Sheppard’s supplemental papers if those papers did not
cause the court to question its interim decision. 	At a status
conference on June 15, 2009, the court directed U.S. Fire to
respond to Sheppard’s supplemental papers, and stated that the
court would consider the propriety of Sheppard’s appointment de
novo at a second hearing.
GOVERNING LAW
An attorney may not, “without the informed written consent of
the . . . former client, accept employment adverse to the . . .
former client where, by reason of the representation of the . . .
former client, the member has obtained confidential information
material to the employment.” 	Cal. R. Prof. Conduct 3-310(E).
In a successive-representation situation, a client may
disqualify its former counsel from the current representation if
the client demonstrates a “substantial relationship” between the
prior representation and the current representation. 	Jessen v.
Hartford Cas. Ins. Co., 111 Cal. App. 4th 698, 705 (2003). 	The
party seeking disqualification bears the burden of proving grounds
for disqualification. 	Faughn v. Perez, 145 Cal. App. 4th 592, 596
(2006).
Under California law, the second representation is considered
to be “substantially related to the prior representation”
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MEMORANDUM RE APPOINTMENT OF COUNSEL
FOR COMMITTEE OF UNSECURED CREDITORS 	-10-
when the evidence before the trial court supports a
rational conclusion that information material to the
evaluation, prosecution, settlement or accomplishment of
the former representation given its factual and legal
issues is also material to the evaluation, prosecution,
settlement or accomplishment of the current
representation given its factual and legal issues.
Jessen, 111 Cal. App. 4th at 712-13. 	This definition tracks that
of the Restatement (Third) of Law Governing Lawyers, which provides
that the current representation is “substantially related” to the
prior representation if
(1) the present representation ‘involves the work the
lawyer performed’ during the prior representation, or
(2)‘there is a substantial risk that [the present
representation] will involve the use of confidential
information acquired in the course of [the prior
representation], unless that information has become
generally known.’
Farris v. Fireman’s Fund Ins. Co., 119 Cal. App. 4th 671, 680
(2004) (brackets and quotes in original).
There exists a “substantial risk” that the present
representation will involve the use of information obtained in the
prior representation “where it is reasonable to conclude that it
would materially advance the [present] client’s position in the
subsequent matter to use confidential information obtained in the
prior representation.” 	Farris, 119 Cal. App. 4th at 681 (quoting
Rest. 3d, Law Governing Lawyers, § 132, cmt. d(iii))(brackets in
original).
When the prior client demonstrates a substantial relationship
between prior and current representations, it is presumed that the
attorney had access to confidential information during the first
representation, and disqualification of the attorney from the
second representation is mandatory. 	Jessen, 111 Cal. App. 4th at
706. 	When an attorney is disqualified from representing a party,
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MEMORANDUM RE APPOINTMENT OF COUNSEL
FOR COMMITTEE OF UNSECURED CREDITORS 	-11-
the attorney’s entire firm must be disqualified, regardless of the
firm’s efforts to erect an ethical wall. 	Hitachi, Ltd. v. Tatung
Co., 419 F.Supp. 2d 1158, 1161-64 (N.D. Cal. 2006).
APPLICATION OF LAW TO FACTS OF THE CASE
The court determines that U.S. Fire has not met its burden of
proving that there is a substantial relationship between Sheppard’s
representation of U.S. Fire in the Kelly Moore Coverage Action and
its representation of the Committee in the Plant bankruptcy case.
U.S. Fire has established that the Kelly Moore Coverage Action and
the Plant Coverage Action involve the same general subject matter,
i.e. insurance coverage disputes arising out of asbestos bodily
injury claims. 	This factor, standing alone, is insufficient to
require disqualification. 	Faughn, 145 Cal. App. 4th at 609-11.
Consideration of the following four factors indicates that U.S.
Fire has not established that there is a substantial risk that
confidential information Sheppard obtained in the Kelly Moore
Coverage Action could be used against it in the Plant Coverage
Action or in the Plant chapter 11 case.
First, U.S. Fire failed to show that the same policy language
was at issue in both the Kelly Moore and Plant Coverage Actions.
U.S. Fire acknowledges that the policies involved in the two
coverage actions were issued by different insurance carriers:
Industrial Indemnity issued the Plant policies; U.S. Fire issued
the Kelly Moore policies. 	Neither party introduced the relevant
policies into evidence.
Second, the legal and factual issues involved in the Kelly
Moore Coverage Action are different from the issues involved in the
Plant Coverage Action. 	The Kelly Moore coverage dispute concerned
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MEMORANDUM RE APPOINTMENT OF COUNSEL
FOR COMMITTEE OF UNSECURED CREDITORS 	-12-
the effect of a Binder, the effect of a prior settlement agreement,
exhaustion of policy limits, and allocation of defense costs among
various policies. 	The Plant Coverage Action raises no significant
issues concerning an insurance binder. 	The Plant Coverage Action
does involve a settlement agreement, but U.S. Fire failed to show
that the circumstances or language of the settlement agreements
involved in the two coverage cases are similar. 	The exhaustion-of-
coverage issues are clearly different in the two coverage actions,
because the two actions concern different types of insureds. 	Kelly
Moore was a manufacturer of asbestos products; Plant was an
installer of asbestos products. 	U.S. Fire did not dispute
Sheppard’s assertion that under the governing insurance policies,
the policy limits applicable to manufacturers are different from
the policy limits applicable to distributors and installers.
Third, U.S. Fire has not established that Sheppard was exposed
to U.S. Fire’s “playbook” of policies and strategies regarding
claims-handling, litigation, and settlement. 	Sheppard represented
U.S. Fire in a single action, and during that representation,
Sheppard attorneys dealt primarily with employees of Riverstone.
Riverstone has since been replaced as U.S. Fire’s third-party
claims manager by Crum and Foster, with whom Sheppard attorneys
have had no contact. 	The facts of the present case are quite
different from the Farris case, in which the disqualified counsel
had acted as coverage counsel for the insurer in 226 matters over a
thirteen-year period, gave coverage and claims-handling advice to
the insurer’s decision-making employees, presented educational
seminars to the insurer’s employees regarding coverage disputes and
bad-faith actions, and then sought to represent an insured in a
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MEMORANDUM RE APPOINTMENT OF COUNSEL
FOR COMMITTEE OF UNSECURED CREDITORS 	-13-
bad-faith action against the insurer. 	Farris, 119 Cal. App. 4th at
620-22.
Fourth, even if the Kelly Moore Coverage Action were
substantially related to the Plant Coverage Action, Sheppard does
not represent any party in the Plant Coverage Action. 	Debtor Plant
is the plaintiff in that action; the Creditors Committee is not a
party. 	Debtor is represented in that action by Morgan, Lewis &
Bockius and by Snyder, Miller & Orton. 	The Plant Coverage Action
is pending in state court, not in the bankruptcy court.
That the Committee is not a party to the Plant Coverage Action
does not mean that the Committee could never have any role in that
action. 	Because Plant has filed a chapter 11 case, any proposed
settlement of the coverage action would be subject to review by
creditors. 	11 U.S.C. § 363(b); Fed. R. Bankr. P. 9019. 	The
Committee would play a central role in reviewing any settlement
recommended by the coverage counsel retained by Debtor. 	If
Sheppard were to represent the Committee in reviewing a settlement
offer from U.S. Fire, such representation would be adverse to U.S.
Fire, because the interest of the Committee is to secure the
largest possible payment from U.S. Fire. 	Because it is a close
question whether the Plant Coverage Action is substantially related
to the Kelly Moore Coverage Action, prudence dictates that Sheppard
not be involved in the prosecution or settlement of the pending
coverage claims against U.S. Fire.
Sheppard has suggested that they would be kept sufficiently
separate from the Plant Coverage Action by agreeing not to advise
the Committee regarding insurance matters. 	This proposed
limitation is not broad enough. 	Sheppard must be barred from
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MEMORANDUM RE APPOINTMENT OF COUNSEL
FOR COMMITTEE OF UNSECURED CREDITORS 	-14-
participating in all Committee proceedings concerning the coverage
claims against U.S. Fire. 	To this end, Sheppard may not advise or
represent the Committee in any activities and deliberations
directly related to the pending coverage claims against U.S. Fire.
Sheppard shall be excluded from all Committee deliberations
regarding those claims, and Sheppard shall have no discussions
regarding those claims with, or otherwise provide any information
regarding those claims to, members of the Committee or their
counsel, any separate counsel for the Committee, or any
other party or their counsel in the Plant Coverage Action or this
chapter 11 case.
The court determines that the limitation just described is the
remedy most appropriate to the facts presented here, and is
sufficient to keep Sheppard separate from the Plant Coverage Action
and to ensure that there is no substantial risk that any
confidential information Sheppard obtained in the Kelly Moore
Coverage Action could be used to the detriment of U.S. Fire in the
Plant Coverage Action or in the Plant chapter 11 case. 	See UMG
Recordings, Inc. v. Myspace, Inc., 526 F.Supp. 2d 1046, 1061-65
(C.D.Cal. 2007) (disqualification not required where counsel agrees
not to pursue “substantially related” claims against former
client).
Other services that Sheppard might perform regarding the Plant
Coverage Action present no possibility of the use of confidential
information against U.S. Fire. 	Two types of disputes could arise.
First, following settlement of the coverage claims against U.S.
Fire, other insurers might object to confirmation of a Committee-
supported plan containing a channeling injunction protecting U.S.
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7 The limitations to be imposed on Sheppard’s scope of
representation are set forth in more detail in the proposed order
attached as Exhibit A. 	The court will not enter that order unless
and until both the Committee and Shepard file statements stating
that they wish to proceed with the appointment of Sheppard as
counsel for the Committee under the terms provided in the proposed
order. 	This memorandum should not be considered an order resolving
the U.S. Fire objection. 	The court will enter a separate order
after Sheppard and the Committee accept, or decline to accept, the
conditions described in the attached proposed order.
MEMORANDUM RE APPOINTMENT OF COUNSEL
FOR COMMITTEE OF UNSECURED CREDITORS 	-15-
Fire. 	See 11 U.S.C. § 524(g). 	In such a dispute, Sheppard would
be supporting the settlement sought by U.S. Fire and would
therefore not be adverse to U.S. Fire. 	Second, U.S. Fire might
object to settlement of coverage claims against other insurers or
confirmation of a plan containing a channeling injunction
protecting other insurers. 	In such a dispute, Sheppard would be
adverse to U.S. Fire, but there would be no possibility that
confidential information of U.S. Fire would be material to the
dispute, because the propriety of the settlement or the channeling
injunction protecting other insurers would turn upon whether the
settlement paid by those other insurers was commensurate with the
likely exposure of those other insurers.
CONCLUSION
The court determines that the Kelly Moore Coverage Action, in
which Sheppard previously represented U.S. Fire, is not
substantially related to the Plant Coverage Action. 	Because that
determination presents such a close question, however, the court
will appoint Sheppard to represent the Committee only upon the
condition that Sheppard not represent the Committee on matters
directly related to the resolution of the Plant coverage claims
against U.S. Fire, including Committee deliberations concerning
approval of any proposed settlement of those claims. 7
**END OF MEMORANDUM**
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-16-
EXHIBIT 	A
UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
In re
PLANT INSULATION COMPANY,
Debtor.
)
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Case No. 09-31347 TEC
Chapter 11
[PROPOSED] ORDER APPOINTING COUNSEL FOR CREDITORS COMMITTEE
Upon due consideration, and for the reasons stated in the
accompanying memorandum decision, the court hereby approves the
application of Sheppard, Mullin, Richter & Hampton LLP (Sheppard)
to serve as counsel for the official committee of unsecured
creditors (the Committee) on the terms and conditions specified in
the application, except as provided in paragraphs (1)-(3) below.
(1) To the extent the Application sought such relief, the court
does not at this time approve any hourly rates under 11 U.S.C.
§ 328.
(2) To the extent the Application sought such relief, the court
does not at this time approve monthly payments to Sheppard under
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-17-
U.S. Trustee v. Knudsen Corp. (In re Knudsen Corp.), 84 B.R. 668
(9th Cir. BAP 1988).
(3) Sheppard’s scope of employment as counsel for the Committee is
limited as follows:
(a) Sheppard shall not represent the Committee with respect to
the claims asserted against U.S. Fire Insurance Company (U.S.
Fire) in Plant Insulation Co. v. Fireman’s Fund Ins. Co. et
al., S.F. Sup. Ct. No. CGC-06-448618 (the Coverage Claims),
and shall not participate in any discussion with the Committee
or the parties to that action or their counsel regarding the
merits or settlement of the Coverage Claims.
(b) Notwithstanding subparagraph (a), above, Sheppard may
represent the Committee on all matters that may affect U.S.
Fire, but that are not directly related to the resolution of
the Coverage Claims.
**END OF [PROPOSED] ORDER**
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Court Service List
Pamela Phillips, Esq.
Howard Rice Nemerovski Canady Falk & Rabkin, P.C.
Three Embarcadero Center, 7th Floor
San Francisco, CA 9411-4024
Michael H. Ahrens, Esq.
Sheppard, Mullin, Richter and Hampton
4 Embarcadero Center, 17th Floor
San Francisco, CA 94111
Lawrence A. Tabb, Esq.
Musick, Peeler & Garrett LLP
One Wilshire Blvd., Suite 2000
Los Angeles, CA 90017-3383
Minnie Loo, Esq.
Office of the U.S. Trustee
235 Pine Street, 7th Floor
San Francisco, CA 94104-3484
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