Asbestos bankruptcy estimation hearing highlights major disparities

PITTSBURGH - The legal proceeding playing out this week in a federal courtroom in this western Pennsylvania city is occurring because lawyers representing asbestos injury claimants and attorneys retained by the bankrupt companies are worlds apart on their respective estimations of the amount of cash available to parties who have been stricken ill because of asbestos exposure.

Known as an "estimation hearing," the proceeding, which is being overseen by U.S. Bankruptcy Judge Judith Fitzgerald, was necessary to help resolve the differences among the sides regarding the monetary value of future claims are concerned.

"The merits of the claims are not to be ignored," Gregory Gordon, an attorney from the firm Jones Day who is working for the debtors, said in court this week. "What is the debtors' responsibilities ...," is the ultimate question for the court, he said.

The focus on the monetary estimation is on the debtors' several share, Gordon said, while liability has to be estimated separately because there are separate debtor entities.

The estimation hearing is grounded in the Chapter 11 bankruptcy petition filed in May 2010 by three companies: Bondex International, Specialty Products Holding Corp., and RPM International Inc.

The companies, which specialized in the manufacture of asbestos-containing joint compound designed for do-it-yourself home renovation projects, were defendants in about 15,000 pending asbestos-related injury claims prior to their filing for bankruptcy, a process that gives companies immediate immunity from civil litigation.

Out of the 15,000 lawsuits, 2,800 of them were mesothelioma claims.

When a company files for bankruptcy, it must create what is known as a 524(g) trust, which is ultimately responsible for compensating present and future claimants.

According to the American Bar Association, as of 2011, 56 trusts have been confirmed on behalf of asbestos defendants that declared bankruptcy, and payments from those trusts have increased exponentially.

As of 2008, the ABA reported, the largest 26 trusts had paid $10.9 billion on 2.4 million claims.

The current combined total assets of the trusts is estimated to be between $35 billion and $60 billion, according to the ABA.

In the present case, the U.S. Bankruptcy Court for the District of Delaware approved economic consulting firm Bates-White to be the estimation expert for the debtors.

Meanwhile, the Official Committee of Asbestos Personal Injury Claimants and the Future Claimants' Representative, Eric D. Green, retained their own experts to calculate what they believe will be the money owed to victims down the road. So far during the estimation hearing, both sides have been presenting expert witnesses who have been testifying on how they arrived at their respective estimations.

Medical experts have also been put on the stand to address asbestos-related injuries themselves, the big one being mesothelioma, which is a type of cancer that affects the lining of the lungs called the mesothelium.

The debtors in this case claim that they suffered a substantial spike in claims in the early 2000s due to a large number of bankruptcy filings by other defendants who were facing numerous lawsuits in the tort system.

The same debtors claim that while still in the tort system, they had to shuck out money to pay for the several liability of other companies in judicial jurisdictions that employ the method known as joint and several liability.

Basically, the debtors claim they were on the hook for others' liability, hence the decision to file for bankruptcy.

The debtors claim that the form of asbestos they dealt in, known as Chrysotile asbestos, is much less toxic than amphibole asbestos, and they question why more claims were being filed against them recently by people allegedly injured by their product.

The debtors assert that the do-it-yourself nature of their products and the debtors' limited market share make it statistically improbable that their products were a contributing cause of more than 50 percent of the mesothelioma cases filed across the country, according to background information on the case contained within the pre-trial order.

The debtors also claim that a review of epidemiological research indicates that drywall workers don't have an increased incidence of mesothelioma, since the ailment is a "dose-responsive" disease, and in the normal use of their products, exposure would not be a "substantial" contributing factor to a plaintiff's mesothelioma diagnosis, the pre-trial order states.

Allan Feingold, a medical doctor who has testified for other defendants in asbestos cases, said as much while on the stand this week.

Feingold was challenged by claimants' attorneys, however, who suggested people still could contract mesothelioma from exposure to Chrysotile asbestos alone, citing the disparity in the research that is in existence.

As for the future claims, Gordon, one of the lawyers working with the debtors, asserted this week that the debtors had less than one percent of the asbestos-containing joint compound on the market with sales of no more than $6 million annually, yet it is claimed that the debtors owe close to a billion dollars and cause half or more of annual mesothelioma claims in the United States.

Common sense dictates that "this can't be right," Gordon said in court this week, something that was reiterated by Charles Mullin, an economic consultant doing work for the debtors.

Bondex was hit with its first asbestos injury suit back in 1980, Gordon said, while Specialty Products Holding Corp. faced its first claim two years later.

Between 1980 and 1999, the two companies were named in only 107 cases.

"Why the avalanche of the meso cases against the debtors," Gordon asked.

What changed, he surmises, is that a number of the "truly responsible" companies filed for bankruptcy and left others to take the fall.

It's relatively cheap for plaintiffs' attorneys to file mass tort claims such as asbestos lawsuits, Gordon said.

By contrast, however, it's very expensive for companies to defend against the claims, with about $300,000 typically needed to defend against an asbestos suit.

Gordon said as the volume of claims increased, and insurance money disappeared, "the debtors had to change their approach."

Namely, the debtors realized it would be cheaper to settle the claims out of court rather than to take a case to trial.

During the course of this week's estimation hearing, the debtors mentioned Madison County, Ill., as being among the worst jurisdictions in the country as far as asbestos litigation is concerned, primarily because of the nature of the docket system in that jurisdiction.

During opening arguments Monday, Natalie Ramsey, an attorney with Montgomery, McCracken, Walker & Rhoads, which is representing the Official Committee of Asbestos Personal Injury Claimants, disagreed with the debtors' contention that Bondex, which became a subsidiary of Specialty Products Holding Corp. in the early 1970s, was a "small player."

Bondex, Ramsey said, continued to put into the stream of commerce asbestos-containing products even after a ban was put into effect, which demonstrated the company simply didn't care about those who got hurt from its products.

"There were some other things going on," Ramsey said in court.

Ramsey said throughout the course of the estimation trial, the court would see a "repeated theme" on the part of the debtors.

"It's not as small a player as the debtors will have you believe," Ramsey said of Bondex. "The debtors have a robust history of resolving asbestos claims."

Ramsey said the plan for her team is to see to it that the debtors are ultimately returned to the tort system.

"Bankruptcy's not a ... do-over for the debtors," she said.

The attorney representing the Future Claimants' Representative also made an opening statement in which he stressed that "the debtors are not the victims here."

"The claimants are the victims your honor," said the lawyer, Edwin J. Harron, of the firm Young, Conway, Stargatt & Taylor.

Harron said testimony by his expert witnesses during this week's hearing will show that $1.1 billion is a "reasonable estimate" on his future claims.

Meanwhile, Harron called the used methodology used by Mullin, the economic consultant retained by the debtors, to come up with the debtors' figures "radical" and "severely flawed."

Ramsey, the lawyer representing the claimants' committee, had earlier in the week moved to have Mullin's testimony stricken, although the judge allowed Mullin to move forward with his testimony.

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