Asbestos bankruptcy estimation hearing gets under way in western Pa.

PITTSBURGH - Lawyers for bankrupt companies that dealt in asbestos-containing products and attorneys representing claimants sparred in federal bankruptcy court Monday on what was the first day in a possible weeklong hearing designed to close the disparity on the value of future claims.

The estimation hearing could last until Friday with each side given a total of 35 hours - 17-and-a-half each - in which to present their respective cases.

The hearing is being overseen by U.S. District Judge Judith Fitzgerald, a federal bankruptcy court judge based in the Western District of Pennsylvania who was specially assigned to handle the case known as In Re: Specialty Products Holding Corp. et al.

The proceedings, held in the soon-to-be-retired Fitzgerald's 54^th floor courtroom, got a relatively slow start after the judge questioned whether Bondex International Inc., which was incorporated in the spring of 1972 as an independently operated and wholly-owned subsidiary of RPM Inc. - later known as RPM International Inc. - should even be included as a party in the estimation hearings.

"I see no basis to estimate as to Bondex," Fitzgerald said from the bench, adding that she sees no plan as to how Bondex could survive bankruptcy.

Bondex, which was in the business of manufacturing joint compound primarily for do-it-yourself home project renovation use, along with the other debtors in the case, Specialty Products Holding Corp. and RPM International Inc., filed for Chapter 11 bankruptcy in late May 2010 in the U.S. Bankruptcy Court for the District of Delaware.

As of that date, court records show, the debtors were defendants in about 15,000 pending asbestos-related injury lawsuits, with about 2,800 of them being mesothelioma claims.

Companies that dealt in asbestos products can seek to limit liability through the filing of Chapter 11 bankruptcy protection, which offers immediate immunity from lawsuits brought by injury victims.

The companies, however, must pool assets and insurance proceeds and place them into a trust that is set up to compensate past and future victims, with the trusts establishing guidelines dictating the amount of compensation to be paid to claimants based primarily on the severity of the illness.

In the current case, the debtors, who are the three former defendants in the tort system, are going up against the Official Committee of Asbestos Personal Injury Claimants and the Future Claimants' Representative (FCR), Eric D. Green.

The committee and the FCR maintain that the agreed settlement values that the debtors have paid on claims are the best evidence of the value of those claims, according to the pre-trial order in the case, and the best predictor of what the debtors would pay in the future if they remained in the tort system.

Both the committee and the FCR contend that the amount of enforceable, settled but unpaid asbestos claims is somewhere in the neighborhood of $55 million, while the debtors maintain that it is about $30 million, the judicial order says.

The debtors claim that the facts relating to their asbestos litigation history differ significantly from the asbestos-related facts of previous bankruptcy cases in which experts presented estimations of the tort system settlement costs, the pre-trial order states.

As a result, the order states, the earlier cases don't provide a basis for the court to conduct an estimation in a similar manner.

The debtors claim they settled past cases mostly to avoid trial risk and to minimize defense costs.

That point was reiterated by the first debtors' witness called to the stand, which occurred after Fitzgerald allowed the proceedings to move forward after her initial questioning of Bondex's involvement in the case.

Kelly Tompkins, the former general counsel to Bondex, who worked for the company and its predecessor from 1996 to 2010, testified that the debtors settled many prior asbestos injury claims because it would have cost more for them to defend the claims at trial.

Tompkins said that in the early years, asbestos litigation for the debtors was not that remarkable, and was generally handled by third-party insurers.

That soon changed, however, when the insurers stopped indemnifying their insured clients, and asbestos injury claims against the debtors began to rise.

After the early 2000s, Tompkins testified, "the volume of claims activity escalated significantly."

Bondex, which was the successor company, was often named as a defendant in mass tort cases along with a host of other companies.

Problems for Bondex arose when the other companies began filing for bankruptcy protection, since many of the asbestos claims were filed in jurisdictions across the country that employed joint and several liability.

In those cases, a defendant who was found to be only one percent liable in an asbestos case could potentially be on the hook for most of the damages if the other defendants couldn't pay up.

Some jurisdictions have since reformed joint and several liability terms, including Pennsylvania, where the current bankruptcy case is playing out in federal court.

As for Bondex, Tompkins testified that as general counsel, it was his job to ensure that risk was minimized, and in this case, that minimization would be signing off on settlements as opposed to taking certain asbestos cases to trial.

Defense costs soar the closer a case gets to trial, he said.

"I started to really have to look at the total cost of the litigation," Tompkins testified.

Tompkins said it got to the point where Bondex was "almost a solvent bystander ... irrespective of what our true liability might be given [those] claims."

Tompkins mentioned Madison County, Ill. as being the principal area of claims activity at that time in history, most likely due to the fact that the lack of procedural hurdles in that jurisdiction made it more appealing for plaintiffs' firms to file asbestos claims.

"In Madison County, we looked at alternative ways of resolving the litigation," Tompkins testified, noting that it would typically cost Bondex between $250,000 and $300,000 to take a case to trial.

He mentioned three plaintiffs' firms in particular as being the major players who filed asbestos claims in Madison County: Cooney & Conway, The Lanier Law Firm and the firm previously known as Simmons and Cooper.

On cross-examination of Tompkins, Mark B. Sheppard, an attorney working for the Official Committee of Asbestos Personal Injury Claimants, talked about the confidentiality clauses that were placed in settlement agreements as presumably being done because the companies were concerned about more asbestos claims being filed against them if word got out.

Tompkins said such clauses are commonplace in settlement agreements.

Two other debtors' witnesses testified during Monday's proceedings: Denise Martin, an expert economic consultant who deals specifically with mass torts, and Charles Mullin, who works for the economic consulting firm Bates-White.

Their respective testimony was fairly technical, although it addressed what the debtors are viewing as the phenomena of increased suits being filed against the likes of Bondex, whose attorneys claim dealt mostly in products designed for home, do-it-yourself use, and not commercial or industrial use, which is where most asbestos claims typically arise

The estimation hearing is expected to last the balance of the week.