Western Asbestos Co.

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	No. 02-46284 T through
02-46286 T
Chapter 11
WESTERN ASBESTOS COMPANY et al., 	Jointly Administered
Debtors.
_______________________________/
HON. CHARLES RENFREW (RET.), 	A.P. No. 07-4141 AT
FUTURES REPRESENTATIVE TO THE
WESTERN ASBESTOS SETTLEMENT
TRUST, AND THE TRUST ADVISORY
COMMITTEE TO THE WESTERN
ASBESTOS SETTLEMENT TRUST,
Plaintiffs,
vs.
HARTFORD ACCIDENT AND INDEMNITY
COMPANY,
Defendant.
________________________________/
AND RELATED COUNTERCLAIM.
_______________________________/
MEMORANDUM OF DECISION RE VARIOUS MOTIONS
REGARDING HARTFORD ACCIDENT AND INDEMNITY COMPANY’S
RIGHTS UNDER THE SETTLEMENT AGREEMENT
Signed: April 11, 2008
________________________________________
LESLIE TCHAIKOVSKY
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
April 11, 2008
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
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1The Plan provided for a Trust Advisory Committee (the “TAC”)
and a Futures Representative (the “Futures Representative”) to
oversee the operations of asbestos claimants’ trust established
pursuant to a reorganization plan confirmed in the above-captioned
cases.
2The Trust Parties do not seek summary judgment on their
second claim for relief, seeking a preliminary injunction.
2
This memorandum of decision addresses: (1) the motion filed by
Hartford 	Accident 	and 	Indemnity 	Company 	(“Hartford”) 	in 	the 	above-
captioned main cases to enforce the terms of its settlement agreement
(the 	“Settlement 	Agreement”) 	with 	the 	above-captioned 	debtors 	(the
“Debtors”)(referred to hereinafter as the “Enforcement Motion”), (2)
Hartford’s 	motion 	in 	the 	above-captioned 	adversary 	proceeding 	for
judgment in its favor on the pleadings or for summary judgment (the
“Summary 	Judgment 	Motion”), 	and 	(3) 	the 	countermotion 	filed 	by 	the
Trust Advisory Committee (the “TAC”) and Futures Representative (the
“Futures 	Representative”) 	(collectively 	the 	“Trust 	Parties”) 1 	for
partial 	summary 	judgment 2 	(the 	“Summary 	Judgment 	Countermotion”).
For the reasons stated below, the Court denies Hartford’s Enforcement
and 	Summary 	Judgment 	Motions 	and 	grants 	the 	Trust 	Parties’ 	Summary
Judgment Countermotion.
SUMMARY OF FACTS
The 	above-captioned 	adversary 	proceeding 	is 	related 	to 	the
Debtors’ jointly administered chapter 11 cases. 	The cases were filed
in 	2002. 	Their 	purpose 	was 	to 	seek 	confirmation 	of 	a 	plan 	to
establish 	an 	asbestos 	claimants’ 	trust 	(the 	“Trust”) 	funded 	by 	a
settlement with an insurance company with which the debtors, or some
of 	them, 	had 	been 	in 	coverage 	litigation 	for 	a 	number 	of 	years.
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Other insurance companies, who also disputed coverage of the Debtors’
liability 	for 	asbestos 	claims 	and 	which 	had 	not 	settled 	with 	the
Debtors, objected to confirmation. 	The most vocal of the objectors
was Hartford.
After 	the 	bankruptcy 	court 	confirmed 	the 	Debtors’ 	plan 	(the
“Plan”) over Hartford’s objection and issued a channeling injunction,
but 	before 	the 	required 	hearing 	before 	the 	district 	court 	seeking
affirmation of the injunction, the Debtors and Hartford entered into
a settlement agreement (the “Settlement Agreement”). 	The Settlement
Agreement 	required 	Hartford 	to 	pay 	$1.15 	billion 	to 	the 	Trust. 	It
gave 	Hartford 	the 	right 	to 	“review 	and/or 	audit” 	the 	Trust 	and 	the
Trust 	payments 	although 	it 	expressly 	denied 	Hartford 	the 	right 	to
challenge any of the payments. 	The Settlement Agreement was approved
by the Court in April 2004.
In 	March 	2007, 	Hartford 	informed 	the 	TAC 	that 	it 	would 	like
exercise 	its 	“review 	and/or 	audit” 	rights. 	It 	suggested 	that 	it
begin 	by 	gaining 	electronic 	access 	to 	any 	claims 	submitted
electronically and to the Trust’s databases reflecting allowance and
payment 	of 	claims. 	The 	TAC 	agreed 	to 	grant 	Hartford 	this 	access
provided 	Hartford 	signed 	a 	confidentiality 	agreement 	prohibiting
Hartford 	from 	using 	any 	of 	the 	information 	obtained 	thereby 	for
purposes 	unrelated 	to 	the 	Trust. 	Hartford 	refused 	to 	sign 	such 	an
agreement. 	It contended that it was entitled to use the information
obtained in this fashion for any purpose. 	Given Hartford’s response,
the TAC refused to give Hartford any access to the Trust documents.
In 	July 	2007, 	Hartford 	filed 	a 	motion 	to 	enforce 	the 	terms 	of
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the 	Settlement 	Agreement. 	Shortly 	thereafter, 	the 	TAC 	filed 	a
countermotion 	for 	a 	determination 	that 	the 	stipulated 	temporary
protective orders previously signed by Hartford imposed the desired
restrictions on Hartford’s use of the information or, alternatively,
for a new protective order that would do so. 	The countermotion was
supported 	by, 	among 	other 	things, 	the 	Declaration 	of 	David 	McClain
(“McClain”), counsel for the Official Unsecured Creditors’ Committee
during the chapter 11 cases and now a member of the TAC.
McClain 	was 	one 	of 	the 	principal 	attorneys 	representing 	the
asbestos 	claimants 	during 	the 	negotiation 	of 	the 	Settlement
Agreement. 	In his declaration, McClain stated that he “specifically
told 	Hartford’s 	representatives 	in 	the 	settlement 	negotiations
that...[he] 	would 	not 	agree 	that 	Hartford 	could 	use 	individual
claimant 	submissions 	to 	the 	Trust 	for 	purposes 	other 	than 	those
connected to the Trust.” 	He stated further in his declaration that
“No representative of Hartford ever suggested during the negotiations
for 	the 	Hartford 	Settlement 	Agreement 	that 	the 	review 	and 	audit
provision was so intended.” 	McClain Declaration, para. 14.
The 	Court 	heard 	the 	motions 	on 	August 	20, 	2007. 	At 	the
conclusion 	of 	the 	hearing, 	the 	Court 	held 	that 	the 	stipulated
protective 	order 	was 	no 	longer 	in 	effect 	and 	that 	an 	adversary
proceeding 	was 	required 	for 	the 	new 	protective 	order 	sought 	by 	the
TAC. 	It 	took 	the 	Enforcement 	Motion 	under 	submission 	and 	directed
the 	parties 	to 	participate 	in 	a 	judicially 	supervised 	settlement
conference. 	Shortly 	thereafter, 	the 	TAC 	and 	the 	Futures
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3A motion filed by the Trust to intervene in the adversary
proceeding was granted in October 2007. 	Thus, reference to the
Trust Parties should be understood to include a reference to the
Trust unless the context indicates otherwise.
4Effective December 1, 2007, Federal Rule of Civil Procedure
12 was amended, moving language formerly in subsection (c) to a
separate subsection (d). 	The language was moved only as a
stylistic change. 	Fed. R. Civ. P. 12 Advisory Committee Note.
5
Representative 	filed 	a 	complaint 	initiating 	this 	adversary
proceeding, seeking declaratory and injunctive relief. 3
After an extended period, the parties and the settlement judge
concluded 	that 	settlement 	was 	not 	feasible. 	Thereafter, 	Hartford
filed 	the 	Summary 	Judgment 	Motion 	and 	the 	Trust 	Parties 	filed 	the
Summary Judgment Countermotion. 	The motions came on for hearing on
March 	31, 	2008 	and, 	at 	the 	conclusion 	of 	the 	hearing, 	were 	taken
under submission.
APPLICABLE LEGAL STANDARDS
A 	party 	may 	move 	for 	judgment 	on 	the 	pleadings 	after 	the
pleadings 	are 	closed 	and 	without 	delaying 	trial. 	Fed. 	R. 	Civ. 	P.
12(c)(made applicable in bankruptcy proceedings by Fed. R. Bankr. P.
7012(b)). 	Judgment on the pleadings is appropriate when the moving
party 	establishes 	that, 	even 	if 	all 	of 	the 	well-pleaded 	factual
allegations 	in 	the 	complaint 	are 	assumed 	to 	be 	true, 	there 	are 	no
genuine 	issues 	of 	material 	fact 	and 	the 	movant 	is 	entitled 	to
judgment 	as 	a 	matter 	of 	law. 	Nelson 	v. 	City 	of 	Irvine, 	143 	F.3d
1196, 1200 (9th Cir. 1998). 	A motion for judgment on the pleadings
is properly treated as a motion for summary judgment when the court
looks 	beyond 	the 	pleadings 	to 	resolve 	the 	matter. 	Fed. 	R. 	Civ. 	P.
12(d) 	(2008)4(made 	applicable 	in 	bankruptcy 	by 	Fed. 	R. 	Bankr. 	P.
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7012(b)); see also Hal Roach Studios, Inc. v. Richard Feiner and Co.,
896 F.2d 1542, 1550 (9th Cir. 1990).
Summary 	judgment 	should 	be 	granted 	if 	there 	are 	no 	genuine
issues of material fact and the moving party is entitled to judgment
as 	a 	matter 	of 	law. 	Fed. 	R. 	Civ. 	P. 	56(c)(made 	applicable 	in
bankruptcy 	cases 	by 	Fed. 	R. 	Bankr. 	P. 	7056). 	If 	the 	moving 	party
demonstrates 	an 	absence 	of 	genuine 	issue 	of 	material 	fact 	with
affirmative evidence or establishes an absence of evidence to support
the nonmoving party’s case it is entitled to judgment as a matter of
law. 	Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). 	If the
moving 	party 	satisfies 	its 	burden, 	the 	non-moving 	party 	must 	set
forth specific facts demonstrating a genuine issue for trial. 	Fed.
R. Civ. P. 56(e)(2)(made applicable in bankruptcy proceedings by Fed.
R. 	Bankr. 	P. 	7056); 	Anderson 	v. 	Liberty 	Lobby, 	Inc., 	477 	U.S. 	242,
250 (1986). 	If the Court is unable to resolve the entire matter by
summary judgment, the Court may summarily adjudicate any portion of
the 	claim 	as 	to 	which 	there 	is 	no 	genuine 	factual 	issue. 	Fed. 	R.
Civ. P. 56(d) (made applicable in bankruptcy proceedings by Fed. R.
Bankr. P. 7056).
Under 	applicable 	California 	contract 	law, 	whether 	a 	contract
term is ambiguous is a question of law. 	See Wolf v. Superior Court,
114 Cal. App.4 th 1343, 1350-51, as modified on denial of reh’g (2004).
If a term is found to be ambiguous, the meaning of the ambiguous term
is a question of law if no extrinsic evidence has been introduced or
if 	extrinsic 	evidence 	is 	not 	in 	conflict. 	Curry 	v. 	Moody, 	40 	Cal.
App. 4 th 1547, 1553 (1995). 	A factual question exists only when the
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meaning of the contract term requires a credibility determination to
resolve 	conflicting 	evidence 	introduced 	by 	the 	parties. 	American
Alternative 	Ins. 	Corp. 	v. 	Superior 	Court, 	135 	Cal. 	App. 	4 th 	1239,
1244-45 (2006).
Under 	California 	law, 	a 	court 	must 	construe 	an 	agreement 	in 	a
fashion that gives effect to the mutual intention of the parties to
the agreement. 	Cal. Civ. Code § 1636. 	The parties’ objective mutual
intent 	is 	to 	be 	inferred, 	if 	possible, 	solely 	from 	the 	written
provisions of the agreement. 	Cal. Civ. Code § 1639. 	However, even
if 	a 	written 	provision 	appears 	clear 	on 	its 	face 	or 	from 	the 	four
corners of the document, a court must consider all credible extrinsic
evidence 	to 	determine 	whether 	a 	latent 	ambiguity 	exists. 	Appleton
v. Waessil, 27 Cal. App. 4 th 551, 554-55 (1994).
If 	this 	process 	persuades 	the 	court 	that 	the 	provision 	is
ambiguous, 	extrinsic 	evidence 	must 	then 	may 	be 	considered 	to
determine its proper meaning. In making that determination, the court
must select the interpretation that is most reasonable and consistent
with 	the 	parties’ 	objective 	mutual 	intent, 	based 	the 	outward
manifestation or expression of their intent. 	Cal. Civ. Code § 1643;
Ben-Zvi v. Edmar Co., 40 Cal. App. 4 th 468, 472-73 (1995). 	Silence
may 	be 	treated 	as 	acceptance 	of 	a 	term 	where 	the 	circumstances
establish 	a 	duty 	to 	speak. 	Golden 	Eagle 	Ins. 	Co. 	v. 	Foremost 	Ins.
Co., 20 Cal. App. 4 th 1372, 1386-87 (1993).
To obtain a permanent injunction, the plaintiff must establish
that there is a likelihood of substantial and immediate irreparable
injury 	and 	that 	remedies 	at 	law, 	such 	as 	damages, 	are 	inadequate.
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See 	American-Arab 	Anti-Discrimination 	Comm. 	v. 	Reno, 	70 	F.3d 	1045,
1066-67 	(9 th 	Cir. 	1995); 	LaDuke 	v. 	Nelson, 	762 	F.2d 	1318, 	1330 	(9 th
Cir. 	1985). 	Irreparable 	injury 	consists 	of 	a 	harm 	that 	cannot 	be
repaired. 	Studebaker 	Corp. 	V. 	Gittlin, 	360 	F.2d 	692, 	698 	(2 d 	Cir.
1966).
DISCUSSION
A. 	DECLARATORY RELIEF
1. 	Summary of Evidence and Argument
The 	three 	motions 	described 	above 	all 	present 	the 	same 	issues
and arguments. 	Hartford contends that the meaning of “review and/or
audit” as used in the Settlement Agreement is plain and unambiguous
and that no extrinsic evidence should be considered to determine its
meaning. 	It 	asserts 	that 	the 	right 	to 	“review 	and/or 	audit” 	the
Trust and the Trust payments not only gives it the right to inspect
all of the Trust documents but also to obtain copies of them and to
use the information contained in them for purposes unrelated to the
Trust.
Hartford 	reasons 	that, 	given 	the 	number 	of 	transactions
involved, it would be unreasonable to expect Hartford to review all
of 	the 	documents 	on 	site. 	Necessarily, 	it 	is 	entitled 	to 	obtain
copies so that it may review them at its leisure in its own business
location. 	Hartford reasons further that, once it has the information
contained in those documents, it is free to use the information for
whatever purposes it desires since the Settlement Agreement does not
prohibit 	it 	from 	doing 	so. 	It 	notes 	that 	the 	Settlement 	Agreement
does expressly prohibit the use of the information contained in the
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documents to challenge the Trust payments. 	The inclusion of this one
express prohibition, Hartford argues, necessarily indicates that no
other use is prohibited.
Hartford 	also 	notes 	that 	section 	12.1 	of 	the 	Settlement
Agreement 	contains 	an 	integration 	clause 	which 	provides 	that 	the
written terms of the Agreement supersede any prior communications or
oral 	agreements. 	It 	points 	out 	that 	section 	25 	of 	the 	Settlement
Agreement 	prohibits 	the 	admission 	of 	evidence 	of 	negotiations 	to
establish the right and/or obligations of the parties.
Finally, 	Hartford 	contends 	that 	most 	of 	the 	information
contained in the Trust documents is not confidential. 	In support of
this 	contention, 	it 	cites 	Volkswagen 	of 	America, 	Inc. 	v. 	Superior
Court, 139 Cal. App. 4 th 1481, 1488 (2006) and Seariver Martiime, Inc.
v. 	Superior 	Court, 	2006 	WL 	2105431 	*3 	(Cal. 	Ct. 	App. 	July 	28,
2006)(unpublished disposition).
The Trust Parties’ rationale follows a different path. 	To begin
with, 	they 	contend 	that 	much 	of 	the 	information 	contained 	in 	the
claims 	forms 	is 	sensitive 	and 	confidential. 	In 	support 	of 	this
contention, they offer the declaration of Sara Beth Brown (“Brown”),
the Executive Director of the Trust. 	Her declaration describes some
of 	the 	personal 	and 	sensitive 	information 	included 	in 	some 	of 	the
claim 	forms, 	such 	as 	references 	to 	drug 	and 	alcohol 	abuse 	and 	HIV
status. 	The 	Trust 	Parties 	also 	argue 	that 	even 	information
concerning 	the 	amount 	of 	payments 	made 	to 	a 	particular 	claimant 	is
sensitive and confidential. 	They note that many of the claimants are
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5At the hearing on the motions, the Trust Parties argued that
the exception in section 25 for actions to enforce the terms of the
Settlement Agreement made any evidence concerning the negotiations
automatically admissible. 	The Court does not find this argument
persuasive.
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elderly 	and 	that 	public 	disclosure 	that 	they 	are 	the 	recipients 	of
large sums of money could render them vulnerable to elder abuse.
The 	Trust 	Parties 	state 	that 	Volkswagen 	and 	Seariver 	are
distinguishable 	in 	that 	those 	cases 	involved 	defendants’ 	rights 	to
discover 	information 	concerning 	the 	very 	claims 	being 	asserted
against them. 	However, the Trust Parties contend that this issue is
irrelevant. 	Regardless of whether the information is confidential,
the Trust Parties argue, Hartford’s “review and/or audit” rights do
not 	give 	it 	the 	right 	to 	use 	the 	information 	obtained 	thereby 	for
purposes unrelated to the Trust.
Next, 	the 	Trust 	Parties 	contend 	that 	the 	meaning 	of 	“review
and/or audit” is ambiguous. 	They note that, even if a phrase appears
to 	have 	a 	plain 	meaning 	on 	its 	face, 	extrinsic 	evidence 	may 	be
considered 	to 	establish 	that, 	as 	used 	in 	context, 	it 	has 	a 	special
meaning 	as 	long 	as 	the 	language 	is 	reasonably 	susceptible 	to 	the
special meaning.
The 	Trust 	Parties 	also 	note 	that 	section 	25, 	prohibiting 	the
admission of evidence concerning the settlement negotiations contains
an 	exception 	for 	actions 	to 	enforce 	the 	terms 	of 	the 	Settlement
Agreement. 5 	They assert that Hartford’s reliance on the integration
clause contained in section 12.1 of the Settlement Agreement misses
the 	point. 	Even 	when 	a 	contract 	is 	integrated, 	the 	meaning 	of 	the
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6At the hearing on the motions, the Court questioned why
Brayton’s declaration was submitted as evidence of what McClain had
said during the negotiations and why the recipient of the statement
on behalf of Hartford was not named. 	The Trust Parties explained
that McClain had been absent from the United States when the
declaration was submitted and, in any event, his declaration,
containing this same statement, had been submitted in the main case
at an earlier date. 	The Court was advised that the recipient of
the statement was William Bowman (“Bowman”), the attorney
representing Hartford at the hearing on the motions and that he had
not been named out of sensitivity to the fact that Bowman was
Hartford’s lead counsel. 	Bowman did not deny this assertion.
Based on the foregoing, the Court is satisfied that the evidence
presented is sufficient to establish a prima facie case that the
statement was made by McClain to Bowman during settlement
negotiations.
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terms 	of 	the 	contract 	must 	still 	be 	determined. 	See 	Morey 	v.
Vannucci, 64 Cal. App. 4 th 904, 913, n.4 (1998).
Further, 	when 	the 	extrinsic 	evidence 	is 	considered, 	the 	Trust
Parties 	argue, 	it 	becomes 	clear 	that, 	in 	this 	context, 	Hartford’s
“review 	and/or 	audit” 	rights 	are 	limited 	to 	use 	of 	the 	information
obtained 	thereby 	to 	purposes 	related 	to 	the 	Trust. 	The 	extrinsic
evidence referred to consists primarily of the declarations of Alan
Brayton (“Brayton”) 6 	the other principal attorney representing the
Trust 	Parties 	in 	the 	settlement 	negotiations, 	McClain, 	Brown
(“Brown”), and Dan Guy (“Guy”).
Guy 	is 	offered 	as 	an 	expert 	witness 	on 	audit 	procedures 	and
standards. 	In his declaration, Guy explains that he is a certified
public 	accountant 	and 	an 	expert 	on 	standards 	applicable 	to 	the
conduct 	of 	an 	audit. 	Guy 	notes 	that, 	from 	the 	perspective 	of 	a
certified public accountant, Hartford’s right to review and/or audit
the 	Trust 	and 	the 	Trust 	payments 	gives 	it 	the 	right 	only 	to 	review
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the 	Trust 	financial 	statements 	and 	any 	underlying 	documents
pertaining to entries in the financial statements.
Moreover, 	Guy 	notes 	that 	Rule 	301 	of 	the 	AICPA 	Code 	of
Profession 	Ethics 	prohibits 	an 	auditor 	from 	disclosing 	or 	using 	to
its 	advantage 	any 	confidential 	information 	without 	the 	Trust’s
consent. 	Although 	the 	Settlement 	Agreement 	does 	not 	require 	that
Hartford 	use 	a 	CPA 	to 	conduct 	any 	audit, 	according 	to 	Guy, 	anyone
else 	performing 	an 	audit 	would 	presumably 	adhere 	to 	the 	ethical
standards established by the AICPA.
In 	his 	declaration, 	Brayton 	explains 	that 	the 	settlement
negotiations 	began 	with 	a 	term 	sheet. 	The 	term 	sheet 	was 	amended
twice and then signed. 	In all three term sheets, the “review and/or
audit” right appeared in the same paragraph as the requirement that
all of the payments made by Hartford be used either to pay claims or
in 	connection 	with 	the 	claims. 	Only 	in 	the 	Settlement 	Agreement,
which was prepared by Hartford, did the “review and/or audit” right
appear 	in 	a 	separate 	paragraph. 	Hartford 	never 	informed 	the 	Trust
Parties 	that 	the 	change 	in 	location 	of 	this 	provision 	was 	intended
to have any significance.
As 	stated 	in 	McClain’s 	declaration 	and 	as 	reiterated 	in
Brayton’s declaration, during the negotiations, McClain told Bowman
that Hartford could not use any of the information contained in the
Trust 	documents 	for 	purposes 	unrelated 	to 	the 	Trust. 	Both 	Brayton
and 	McClain 	declare 	that 	Bowman 	told 	them 	that 	Hartford 	needed 	the
information for purposes of reinsurance.
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In 	reply, 	Bowman 	admits 	telling 	Brayton 	and 	McClain 	that
Hartford needed the right to review and/or audit the Trust and Trust
Payments for purposes of reinsurance but asserts that he never told
them that this was the sole purpose for the provision. 	Bowman admits
never telling Brayton and McClain that Hartford wanted the right to
use 	and 	disseminate 	information 	obtained 	through 	a 	review 	and/or
audit 	of 	the 	Trust 	for 	purposes 	unrelated 	to 	the 	Trust. 	At 	the
hearing, 	Bowman 	declined 	to 	either 	admit 	or 	deny 	that 	during
negotiations 	McClain 	told 	him 	that 	Hartford 	could 	not 	use 	the
information for purposes unrelated to the Trust. 	Instead, he argues
that this is irrelevant since Hartford never affirmatively agreed to
any such limitation.
Hartford 	offers 	the 	declaration 	of 	Michael 	Ceppi 	(“Ceppi”) 	to
rebut the expert testimony of Guy. 	Ceppi identifies himself as the
President 	of 	a 	company 	that 	provides 	independent 	audit 	services.
Ceppi states that he has twenty years of experience in the insurance
industry. 	Based on this experience, 	he declares that an audit would
not 	normally 	be 	understood 	to 	be 	limited 	to 	an 	examination 	of 	an
entity’s 	financial 	statements 	nor 	would 	it 	be 	conducted 	with
reference to professional standards specifically applicable to CPAs.
Ceppi 	declares 	further 	that, 	since 	most 	audits 	require 	the
review 	of 	voluminous 	documents, 	it 	is 	commonly 	understood 	that 	an
insurer 	conducting 	a 	review 	and/or 	audit 	has 	the 	right 	to 	make
extracts and copies of the documents being reviewed and to maintain
those 	documents 	for 	as 	long 	as 	necessary 	to 	complete 	its 	study.
Finally, he declares that, since the entity is not the client of the
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auditor, 	there 	is 	no 	client 	relationship 	that 	creates 	a 	duty 	of
confidentiality to the entity that is the subject of the audit.
2. 	Decision
The parties agree that resolution of this dispute turns on the
meaning 	of 	“review 	and/or 	audit” 	as 	used 	in 	section 	14.1 	of 	the
Settlement Agreement. 	Section 14.1 provides as follows:
XIV. 	AUDIT RIGHTS
Hartford 	shall 	have 	the 	right, 	at 	its 	own 	expense, 	upon
reasonable 	notice, 	at 	a 	time 	and 	place 	convenient 	to 	the
Trust, to review and/or audit the Trust and Trust payments.
The 	Trust 	shall 	have 	no 	obligation 	to 	create 	any 	new
documents in connection with any such review beyond those
ordinarily created or maintained by the Trust, and Hartford
shall 	not 	be 	permitted 	to 	challenge 	the 	allowance 	or
payment 	of 	Claims 	by 	the 	Trust 	or 	any 	administrative
payments or costs of the Trust.
Hartford contends that the meaning of the phrase “review and/or
audit” as used in this section is plain and unambiguous and that no
extrinsic 	evidence 	should 	be 	considered 	to 	determine 	its 	meaning.
However, 	its 	rationale 	depends 	on 	either 	the 	application 	of 	common
sense or the consideration of extrinsic evidence. 	Hartford contends
that the phrase includes the right to obtain copies of the documents
to 	be 	reviewed 	and/or 	audited. 	The 	right 	to 	obtain 	copies 	of 	the
audit documents is not within the plain meaning of the phrase “review
and/or audit.” 	Once it is acknowledged that either common sense or
extrinsic evidence is required to construe the phrase to include such
a 	right, 	the 	process 	may 	not 	stop 	there. 	The 	same 	process 	must 	be
applied to determine whether the “review and/or audit” right includes
the right to use information obtained thereby for purposes unrelated
to the audit.
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If the Court takes a common sense approach, it would agree with
Hartford 	that 	the 	right 	to 	“review 	and/or 	audit” 	also 	conveys 	the
right to obtain copies of the documents to be reviewed and/or audited
when 	the 	documents, 	as 	here, 	are 	voluminous. 	However, 	taking 	this
approach, the Court agrees with the Trust Parties that the right to
“review 	and/or 	audit” 	also 	limits 	the 	auditor 	to 	use 	of 	the 	copies
and 	the 	information 	contained 	in 	them 	for 	purposes 	related 	to 	the
audit. 	Any other conclusion would make audits few and far between.
The extrinsic evidence presented by the parties brings the Court to
the same two conclusions.
With respect to evidence offered by the experts, the Court finds
Guy’s declaration more persuasive than Ceppi’s. 	Above all, nowhere
in Ceppi’s declaration does he expressly state that, in his opinion,
an auditor would be free to use information obtained during an audit
for purposes unrelated to the audit without the consent of the entity
being audited. 	Thus, the Court is persuaded that the most reasonable
construction of the phrase “review and/or audit” would not give the
auditor the right to such a use.
The 	Court 	is 	also 	persuaded 	by 	the 	undisputed 	evidence
concerning 	the 	communications 	between 	the 	parties 	during 	the
settlement 	negotiations 	that 	the 	manifested 	understanding 	of 	the
parties was that the information obtained through the audit could not
be 	used 	for 	purposes 	unrelated 	to 	the 	audit. 	As 	noted 	above, 	no
evidence has been presented to contradict McClain’s sworn statement
that he told Bowman during the negotiations that he would not agree
that the information contained in the Trust documents could be used
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for purposes unrelated to the Trust. 	Similarly, no evidence has been
presented to contradict Brayton’s and McClain’s statement that no one
acting 	on 	behalf 	of 	Hartford 	ever 	expressed 	any 	disagreement 	with
such 	a 	limitation. 	The 	Court 	concludes 	that 	these 	communications
alone were sufficient to impose a limitation on Hartford’s use of the
information. 	Under the circumstances, Bowman had a duty to speak up
if 	he 	would 	not 	agree 	to 	it. 	Moreover, 	Bowman 	admits 	having 	told
Brayton 	and 	McClain 	that 	he 	needed 	the 	“review 	and/or 	audit” 	right
for 	purposes 	of 	reinsurance. 	His 	failure 	to 	specify 	that 	this 	was
not his sole purpose for wanting the right to “review and/or audit”
the Trust was insufficient to satisfy that duty.
Hartford 	argues 	that 	the 	prohibition 	on 	the 	use 	of 	the
information contained in the Trust documents to challenge the Trust
payments indicates that no other limitation on its use was intended.
The Court finds this argument unpersuasive. 	One might just as easily
argue that the Trust’s right to designate the time and the place of
the review and/or audit gives the Trust the right to insist that the
review 	and/or 	audit 	be 	conducted 	on 	the 	business 	premises 	of 	the
Trust 	and 	that 	no 	copies 	or 	notes 	be 	taken 	off 	those 	premises.
However, 	the 	Court 	believes 	that 	neither 	provision 	was 	within 	the
expressed intention of the parties to the Settlement Agreement. 	As
indicated above, the Court concludes that the expressed intention of
the 	parties 	was 	that 	Hartford 	could 	obtain 	copies 	of 	the 	Trust
documents, if needed to conduct the audit for purposes related to the
Trust, but that Hartford could not use the information contained in
the Trust documents for unrelated purposes.
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7Seariver involved facts virtually identical to Volkswagen and
the Seariver cited Volkswagen with approval, agreeing with its
conclusions. 	Seariver at *3-4.
8However, the Court agrees with the Trust Parties that the
confidential nature of the information is not determinative.
Absent extrinsic evidence of a contrary intention or an express
agreement to the contrary, the Court concludes that the right to
“review and/or audit” the records of a company does not give the
auditor the right to use the information obtained for its own
purposes.
17
Finally, the Court also agrees with the Trust parties that much
of 	the 	information 	contained 	in 	the 	claims 	forms 	is 	confidential.
The cases cited by Hartford for the contrary proposition are clearly
distinguishable. 	In 	Volkswagen, 	the 	information 	sought 	by 	the
defendant 	through 	discovery 	concerned 	a 	claim 	for 	damages 	being
asserted against it. 7 	It would be unreasonable for a plaintiff to be
permitted 	to 	assert 	damages 	against 	a 	third 	party 	and 	at 	the 	same
time 	to 	withhold 	evidence 	that 	might 	relate 	to 	his 	claim. 	In 	the
instant 	case, 	the 	information 	sought 	by 	Hartford 	has 	no 	bearing 	on
a claim of damages being asserted against it, either directly or as
the 	insurer 	of 	a 	third 	party. 	If 	it 	did, 	Hartford 	could 	seek 	the
information 	in 	question 	through 	discovery 	in 	the 	case 	in 	which 	the
claim was to be litigated. 8
However, the confidential nature of much of the information does
underline the unreasonableness of Hartford’s quest. 	Hartford argues
that 	it 	has 	a 	legitimate 	need 	for 	the 	information. 	It 	is 	involved
in other bankruptcy cases in which claims are being asserted against
its 	insureds 	by 	the 	same 	claimants 	submitting 	claims 	to 	the 	Trust.
Some 	of 	the 	claims 	submitted 	to 	the 	Trust 	may 	contain 	inconsistent
information.
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The 	problem 	with 	Hartford’s 	solution 	for 	dealing 	with 	its
problem 	is 	that, 	to 	combat 	it, 	Hartford 	seeks 	access 	to 	the
confidential 	information 	of 	many 	claimants 	who 	are 	not 	submitting
claims 	in 	other 	bankruptcy 	cases 	or 	to 	other 	trusts. 	Moreover,
Hartford 	has 	other, 	more 	narrowly 	tailored 	means 	to 	accomplish 	its
purpose. 	Hartford can seek discovery from the claimants in the other
bankruptcy 	cases 	or 	even 	third 	party 	discovery 	against 	the 	Trust
regarding 	the 	claimants 	in 	those 	other 	cases. 	At 	that 	point, 	any
protective 	measures 	deemed 	appropriate 	may 	be 	considered 	by 	the
court.
B. 	PERMANENT INJUNCTION
In 	their 	third 	claim 	for 	relief, 	the 	Trust 	Parties 	seek 	to
enjoin Hartford permanently from: (1) obtaining access to the Trust
claimants’ 	nonpublic 	personal, 	medical 	and 	claimant 	specific
information, (2) using any of the information obtained from any audit
permitted 	beyond 	these 	bankruptcy 	cases, 	and 	(3) 	disclosure 	of 	any
such information beyond any disclosure that would have been permitted
pursuant to stipulated protective orders previously executed by the
parties. 	They contend that the injunction is essential to protect
the Trust beneficiaries from irreparable injury, consisting primarily
of an invasion of their privacy, a constitutionally protected right.
Hartford 	contends 	that 	the 	Trust 	Parties 	have 	not 	established
the 	right 	to 	an 	injunction. 	To 	begin 	with, 	it 	contends 	that 	the
restrictions 	that 	the 	Trust 	Parties 	seek 	to 	place 	on 	their 	“review
and/or 	audit” 	rights 	would 	make 	any 	such 	rights 	meaningless. 	In
essence, they seek to restrict Hartford to a review and audit of the
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Trust’s 	aggregate 	financial 	data. 	Hartford 	argues 	that 	this
restriction is inconsistent with the terms of the previous stipulated
protective orders which did give Hartford access to claimant specific
information. 	Moreover, it contends, the restriction is contrary to
the 	plain 	language 	of 	the 	Settlement 	Agreement 	and 	any 	reasonable
construction of the phrase “review and/or audit.”
The 	Trust 	Parties’ 	response 	assumes 	that 	the 	Court 	will 	grant
their 	motion 	for 	partial 	summary 	judgment 	on 	the 	first 	claim 	for
relief. 	Thus, 	the 	likelihood 	of 	success 	on 	the 	merits 	requirement
for 	a 	permanent 	injunction 	will 	be 	satisfied. 	With 	respect 	to 	the
irreparable injury requirement, they cite Nelson v. Nat. Aeronautics
& 	Space 	Admin., 	512 	F.3d 	1134, 	1144 	(9 th 	Cir. 	2008) 	for 	the
proposition that, unlike monetary injuries, constitutional violations
can never be adequately remedied by an award of damages. 	Therefore,
they 	necessarily 	present 	a 	threat 	of 	irreparable 	injury. 	The
invasion 	of 	the 	claimants’ 	privacy 	clearly 	constitutes 	a
constitutional violation.
As discussed above, the Court concludes that the Trust Parties
are 	entitled 	to 	partial 	summary 	judgment 	on 	their 	first 	claim 	for
relief, for declaratory judgment. 	The Court is also persuaded that
Hartford’s threatened use of the claimants’ private information for
purposes 	unrelated 	to 	the 	Trust 	threatens 	irreparable 	injury,
therefore 	warranting 	the 	issuance 	of 	a 	permanent 	injunction. 	The
only 	remaining 	question 	is 	whether 	the 	scope 	of 	the 	permanent
injunction proposed by the Trust Parties is too broad.
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The Court is persuaded that the scope of the injunction proposed
by 	the 	Trust 	Parties 	is 	too 	broad. 	The 	Court 	construes 	the 	review
and/or audit rights granted to Hartford by the Settlement Agreement
to give Hartford access to claimant specific information. 	Hartford
had 	such 	access 	during 	the 	active 	phase 	of 	the 	bankruptcy 	cases
pursuant to the terms of a stipulated protective order. 	Initially,
the 	Trust 	Parties 	were 	willing 	to 	give 	Hartford 	access 	to 	claimant
specific information provided they sign a new stipulated protective
order. 	The terms of the Court’s permanent injunction should mirror
the 	restrictions 	placed 	on 	the 	use 	of 	the 	information 	set 	forth 	in
the stipulated protective orders.
CONCLUSION
Hartford’s 	Enforcement 	and 	Summary 	Judgment 	Motions 	will 	be
denied, 	and 	the 	Trust 	Parties’ 	Motion 	for 	Partial 	Summary 	Judgment
will 	be 	granted. 	The 	phrase 	“review 	and/or 	audit” 	as 	contained 	in
section 14.1 of the Settlement Agreement is ambiguous. 	Considering
the extrinsic evidence presented by the parties, the Court concludes
that 	the 	parties’ 	expressed 	understanding 	of 	the 	meaning 	of 	the
phrase 	gives 	Hartford 	the 	right 	to 	obtain 	copies 	of 	any 	Trust
documents to the extent necessary to perform the audit but does not
permit Hartford to use the information obtained through the audit for
its 	own 	purposes 	or 	to 	disclose 	that 	information 	to 	third 	parties.
The Court will grant the Trust Parties request for a permanent
injunction, 	having 	concluded 	that 	the 	Trust 	Parties 	have 	prevailed
on the merits and that there is a threat of irreparable injury if the
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permanent 	injunction 	does 	not 	issue. 	However, 	the 	scope 	of 	the
injunction 	proposed 	by 	the 	Trust 	Parties 	is 	too 	broad 	and 	should
instead 	mirror 	the 	limitations 	on 	the 	use 	and 	disclosure 	of 	the
information 	set 	forth 	in 	the 	stipulated 	protective 	orders 	executed
during the active phase of the cases.
Counsel for the Trust Parties is directed to submit a proposed
order 	in 	accordance 	with 	this 	decision. 	If 	the 	order 	provides 	for
the dismissal of the second claim for relief, the Trust Parties may
also submit a proposed form of judgment. 	Pending entry of any such
judgment, the proceeding is hereby scheduled for a status conference
on July 17, 2008 at 11:00 a.m.
END OF DOCUMENT
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COURT SERVICE LIST
Steven B. Sacks
Sheppard, Mullin, Richter and Hampton
4 Embarcadero Center 17th Fl.
San Francisco, CA 94111
Gary S. Fergus
Fergus Law Firm
595 Market St. #2430
San Francisco, CA 94105
Janet L. Chubb
Law Offices of Jones Vargas
100 W Liberty St. 12th Fl.
P.O. Box 281
Reno, NV 89504
William J. Bowman
Hogan and Hartson LLP
555 13th St. N.W.
Washington, DC 20004
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