Summary:
In one of the more consequential procedural rulings yet arising from the ongoing DBMP LLC “Texas Two-Step” bankruptcy, Judge Ashley Austin Edwards granted a stay pending appeal of her earlier privilege-waiver decision that had ordered disclosure of hundreds of allegedly privileged documents in the sprawling asbestos litigation surrounding DBMP and related entities.
The underlying dispute concerns whether DBMP and affiliated defendants waived attorney-client privilege by making extensive legal “state-of-mind” arguments defending the restructuring and bankruptcy filing. The Court’s earlier ruling had found limited at-issue waiver as to several categories of communications involving the Texas Two-Step restructuring, funding agreements, and related legal strategy. That ruling ordered disclosure of roughly 600 documents, at least in part.
The new opinion does not decide whether the privilege ruling was correct. Instead, it addresses whether disclosure should be paused while appellate courts review the issue. Applying the four-factor test from Nken v. Holder, the Court concluded that a stay was appropriate because the privilege issues are both unsettled and extraordinarily important.
Judge Edwards emphasized that the law regarding “at-issue waiver” remains deeply divided among courts, particularly between the broader Hearn approach and the narrower Rhone-Poulenc line of cases. The Court reiterated that its earlier ruling attempted to carve out a middle ground: privilege may be waived when a party affirmatively injects dispositive legal state-of-mind assertions into litigation in circumstances where reliance on counsel is effectively unavoidable.
Importantly, the Court held that the defendants had shown irreparable harm because once privileged materials are disclosed, “the cat is out of the bag.” Even if an appellate court later reverses the privilege ruling, opposing parties cannot realistically “unlearn” the information. The Court recognized the practical reality that litigants who review privileged communications may use that knowledge to shape discovery strategy, deposition questioning, and trial preparation in ways that can never be fully undone.
At the same time, Judge Edwards acknowledged the competing concern that continued delay in asbestos litigation risks faded memories, unavailable witnesses, and prejudice to claimants suffering from serious disease. Nevertheless, the Court concluded that the privilege concerns outweighed those harms for now and granted the stay pending appeal.
This latest ruling fits squarely into the continuing DBMP saga previously discussed here:
Commentary:
While this decision arises in the unusual and enormously complex context of a Texas Two-Step asbestos bankruptcy, consumer bankruptcy attorneys should pay close attention to the Court’s discussion of stays pending appeal.
Too often, requests for a stay pending appeal in consumer cases are treated as almost perfunctory denials unless the movant can prove likely outright victory on appeal. Judge Edwards’ opinion is a useful reminder that the standard is more nuanced—particularly where disclosure of information, foreclosure activity, repossession, or other irreversible consequences are involved.
The opinion repeatedly stresses that some harms simply cannot be unwound after the fact. Once privileged information is disclosed, once strategic information is learned, or once actions are taken in reliance on a disputed order, appellate reversal may be an incomplete remedy. That logic applies far beyond asbestos bankruptcies.
For consumer debtors, this reasoning may be particularly useful when seeking a stay pending appeal involving:
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Relief from stay orders leading to imminent foreclosure sales;
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Orders compelling turnover or disclosure of sensitive financial information;
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Dismissal orders where collection activity will immediately resume;
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Orders denying exemptions or avoiding liens where property may be sold before appellate review;
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Student loan discharge litigation involving compelled disclosures;
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Discovery sanctions or attorney-client privilege disputes.
Indeed, there is a direct thematic overlap with the earlier DBMP decisions. In the Fourth Circuit’s decision in Herlihy v. DBMP, the courts likewise emphasized preserving the status quo while appellate review proceeds, especially where later reversal may be ineffective once actions occur. The broader lesson emerging from these cases is that bankruptcy courts retain substantial equitable discretion to prevent irreversible consequences pending appeal.
There is also a subtle but important procedural point here. Judge Edwards specifically noted that difficult, unsettled, or first-impression issues themselves may support a stay pending appeal, even absent certainty that the movant will ultimately prevail. That may provide valuable authority for debtors confronting evolving legal issues involving student loans, mortgage servicing, Rule 3002.1 disputes, arbitration clauses, AI-generated evidence, cryptocurrency assets, or other developing areas where appellate guidance remains limited.
And, perhaps most importantly, this opinion recognizes something bankruptcy practitioners already know from experience: appellate rights are meaningless if the damage is completed before the appeal can be heard.
To read a copy of the transcript, please see:
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