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In Re: Teligent, Incorporated v. K&L Gates Llp

May 5, 2011

IN RE: TELIGENT, INCORPORATED, DEBTOR, SAVAGE & ASSOCIATES, P.C., PLAINTIFF-APPELLANT-CROSS-APPELLEE,
v.
K&L GATES LLP, APPELLEE-CROSS-APPELLANT, AND ALEX MANDL, DEFENDANT-APPELLEE-CROSS APPELLEE.



Appeal and cross-appeal from an order of the United States District Court for the Southern District of New York (Castel, J.) affirming the order of the bankruptcy court (Bernstein, C.B.J.), which denied K&L Gates LLP's ("K&L Gates") motion to lift two protective orders prohibiting disclosure of communications made during a mediation, and Savage & Associates, P.C.'s cross-motion to enjoin K&L Gates from raising questions about the validity of certain provisions of a settlement agreement as a defense to malpractice in a related action.

The opinion of the court was delivered by: Pooler, Circuit Judge.

10-2257 (L)

In re: Teligent, Incorporated

Argued: January 11, 2011

Before: POOLER, WESLEY, and CHIN, Circuit Judges.

With respect to the cross-appeal, the protective orders are silent as to when their confidentiality restrictions may be lifted; therefore, disclosure would have been warranted only if the party seeking disclosure had demonstrated (1) a special need for the confidential material it sought; (2) resulting unfairness from a lack of discovery; and (3) that the need for the evidence outweighed the interest in maintaining confidentiality. K&L Gates failed to make the requisite showing, and accordingly, we conclude there was no error in the denial of the law firm's motion.

With respect to the lead appeal, because K&L Gates was, at most, a potential debtor of a debtor of the estate, it could not have been considered a "party in interest" with standing to contest the validity of the settlement agreement when the motion to approve that agreement was pending before the bankruptcy court. There was, therefore, no error in the holding that K&L Gates is not barred from asserting a defense challenging the validity of any provision of the settlement agreement in connection with the related malpractice action currently pending against the law firm. Accordingly, we affirm the order of the district court in its entirety. AFFIRMED.

Appeal and cross-appeal from an order of the United States District Court for the Southern District of New York (Castel, J.) affirming the order of the bankruptcy court (Bernstein, C.B.J.), which denied K&L Gates LLP's ("K& L Gates") motion to lift two protective orders prohibiting disclosure of communications made during a mediation, and Savage & Associates, P.C.'s cross-motion to enjoin K&L Gates from raising questions about the validity of certain provisions of a settlement agreement as a defense to malpractice in a related action.

With respect to the cross-appeal, the protective orders are silent as to when their confidentiality restrictions may be lifted; therefore, disclosure would have been warranted only if the party seeking disclosure had demonstrated (1) a special need for the confidential material it sought; (2) resulting unfairness from a lack of discovery; and (3) that the need for the evidence outweighed the interest in maintaining confidentiality. K&L Gates failed to make the requisite showing, and accordingly, we conclude there was no error in the denial of the law firm's motion.

With respect to the lead appeal, because K&L Gates was, at most, a potential debtor of a debtor of the estate, it could not have been considered a "party in interest" with standing to contest the validity of the settlement agreement when the motion to approve that agreement was pending before the bankruptcy court. There was, therefore, no error in the holding that K&L Gates is not barred from asserting a defense challenging the validity of any provision of the settlement agreement in connection with the related malpractice action currently pending against the law firm. Accordingly, we affirm the order of the district court in its entirety.

BACKGROUND

Since the issues are narrow, we recite only as much of the factual background as is necessary to understand the decision.

When Teligent, Inc. ("Teligent") hired Alex Mandl as its CEO in 1996, the company extended Mandl a $15 million loan. The loan was to be due and payable immediately if Mandl resigned his employment without "good reason," but would be automatically forgiven if Teligent terminated Mandl's employment other than for "cause."

Mandl retained the law firm K&L Gates LLP around April 2001 in connection with his potential departure from Teligent. At that time, $12 million was outstanding on the loan. K&L Gates drafted a severance agreement for Mandl that, according to the law firm, "reflect[ed] that Teligent had terminated Mandl other than for ...


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