Allegheny International, Inc.

Representation: Product Liability Claimants

Bankruptcy – Western District of Pennsylvania

Situation: In the historically significant Allegheny International, Inc. (AI) bankruptcy case, Bernstein and Bernstein, P.C. represented several individuals injured by Northern Electric Company’s malfunctioning electric blankets. Northern Electric is a division of AI. Compensatory damages were covered by insurance, but these individuals also sought punitive damages which were not covered.

AI’s bankruptcy court filing estimated the potential exposure to punitive damage claims at approximately $150 million. If the liability was that great, the feasibility of any plan was put in significant doubt. While AI disputed that its conduct was sufficient to justify the award of punitive damages, the simple fact they were being asserted could have affected plan feasibility. Because AI sought to disallow the punitive damage claims in the Northern Electric Co. lawsuits as a matter of bankruptcy law, a routine motion seeking relief from the automatic stay to allow individual claimants to continue their state-court lawsuits against the electric company, turned into significant bankruptcy litigation.

Action: After substantial briefing and argument, the bankruptcy court finally issued an opinion allowing relief from the automatic stay so the punitive damage claims could be liquidated in the state courts. The court decided that, as a matter of bankruptcy law, the punitive damage claims could not be simply disallowed at that stage of the case as contended by AI. This was a significant victory from the perspective of Bernstein and Bernstein, P.C.’s clients. Many other claimants bootstrapped on the victory of Bernstein and Bernstein, P.C.’s clients. The plan as ultimately filed and confirmed reinstated these claims.