GlobalTort : Commentary from lawyers and experts on mass torts, law, insurance and science

Although long overdue, it's once again good to see growing attention focused on the lack of transparency and accountability with respect to the management and administration of chapter 11 asbestos trusts. The most recent example of increased attention arises from a Texas Congressman, Lamar  Smith,  sending  the Government Accountability Office (GAO) an April 29, 2010 letter asking the GAO to study the administration of chapter 11 asbestos trusts. The letter includes specific requests to focus on the lack of transparency.   Thus,  the letter requests the following:  

"In order to aid Congress in better understanding whether increased transparency could help ward off the potential for abuse related to 524(g) asbestos trusts, I request that the GAO conduct a study to determine: 

1. What actions and via what mechanisms, if any, 524(g) asbestos trusts are taking to avoid duplicative payments to claimants or payments to claimants with inadequate proof of entitlement to compensation by the trusts;

2. whether 524(g) asbestos trusts adequately and timely disclose information about demands made by asbestos claimants where relevant between and among S24(g) trusts;

3. whether 524(g) asbestos trusts adequately and timely disclose information about demands made by asbestos claimants where relevant to tort litigation;

4. whether, and to what extent, S24(g) asbestos trusts are making demand and payment information available to courts and other participants in the tort system in order to facilitate full compensation in a manner that avoids a windfall for any claimants while ensuring the trusts have adequate resources to pay future claimants equally, as mandated by Congress; and

5. whether greater cooperation and transparency between 524(g) asbestos trusts and the tort system could reduce the possibility of duplicate payments made by trusts or by tort defendants."

Regular readers may recall my prior posts barking in general about the lack of transparency as to the trusts in particular (e.g.  here), and this prior post  also addressing the topic and providing links to various articles by Jack Cohn and others regarding the lack of transparency in the trusts.  On the subject of the absence of transparency in bankruptcy in general, look to the right for posts collected under the  topic "Transparency in Bankruptcy). For me, Congressman Smith's letter is a great  birthday present.

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The BBC reported today that asbestos-related disease is the largest single cause of work-related deaths in the UK, with annual deaths at around 2,000 per year.  Why so many deaths in such a small country ? Much of the answer has to do with the amount of amphibole fiber use, according to Dr. Julian Peto, one of the world's best epidemiologists. As mentioned before, Dr. Peto and other top scientists speak next week at this Perrin conference in Las Vegas.  I'm looking forward to attending and learning more.

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Some argue the CDO financial fiasco years is the biggest mass tort in history. Towards that view, the  ratings agencies suffered a major loss on a motion to dismiss in a case before the well-known and well-regarded Judge Schira Scheindlin.

D & O Diary covers the opinion here, and includes links to the opinion and other articles. In short, the court  rejected a causation based argument that sought dismissal of the claims on the theory that that there were larger causes of the investor losses.  D & O also mentions and links to Judge Scheindlin's prior opinion rejecting a First Amendment defense to similar claims in a different case against ratings agencies. 

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Estimates and disclosure of contingent risks are front and center these days in various contexts. Thus, asbestos-specific estimates and disclosures are prominently mentioned in a new  Australian appellate decision in CSR. The opinion was issued at the end of last week, and provides some narrow guidance on solvent schemes of arrangement for companies facing asbestos claiming. A prior post here  describes the trial court litigation regarding the efforts of CSR, an Australian business, to obtain judicial approval of a  reduction of its its asset base when it faces admittedly significant current and future asbestos claims.  The proposed reduction of assets would be accomplished through a "demerger" (in the US, we would call it a spinoff). 

The federal appellate court opinion in CSR is worth reading for those interested in the social and legal policy issues involving tort claiming and corporate transactions. That said,  the opinion is narrow. In short, the court did not approve the demerger, and did not find the demerger reasonable. Instead, it narrowly held that the trial court should allow the process to move forward to a meeting of creditors. 

The future developments in CSR will be interesting. At present, CSR's demerger efforts are opposed by asbestos claimants, AISIC (the Australian counterpart to the SEC), a regional government  fund obligated to pay claims by persons suffering from asbestos-related diseases, and by a significant asbestos co-defendant, James Hardie.  To date, the objectors have not cross-examined various actuaries who prepared estimates of the future asbestos payments by CSR. it will important and interesting to see the substance that emerges from cross-examination of actuaries, if it occurs.  Cross-examination did not occur to date because the parties structured  the proceedings that way and allowed much of the information to remain "confidential."  The appellate court opinion seems to put the reasonableness of the actuarial reports squarely into play for  cross-examination and argument during future proceedings. Thus, the appellate court explained:

" 56  As to the argument advanced on behalf of the James Hardie parties, the reports prepared by CSR’s actuaries purport to quantify the present value of CSR’s future long term exposure to asbestos claimants. There is nothing in these reports which suggests that any category of asbestos claimant has not been included in their actuarial assessment. There is, accordingly, force in CSR’s argument that the learned primary judge erred in treating the disclaimer in the Grant Samuel report as indicating that the assessments made on behalf of CSR did not include persons who have not yet contracted an asbestos related disease as a result of exposure for which CSR is responsible. On the other hand, this important question could have been resolved beyond the possibility of doubt by cross-examination of the relevant authors. That did not occur in the proceedings before the learned primary judge. To say this is in no way to level a criticism at her Honour: the case was conducted before her in accordance with the wishes of the applicant and the interveners. To say this is, however, to recognise that an application for the convening of the first meeting of shareholders under s 411(1) of the Act is not an ideal occasion to attempt to resolve such issues.  " (emphasis added)

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 A new expert report calls for significant changes and improvements to  the clinical trial approval and implementation process as it pertains to cancer research. Why do these clinical trials matter and why is important to accomplish the changes, quickly ?

1.5 million Americans will be diagnosed with cancer this year. For too many, the only hope for life will lie in a clinical trial. For too many,  there will not be an answer, and so 500,000 Americans will die of cancer or its consequences. Some will suffer intense physical pain. Virtually all will suffer significant emotional loss, and for some, depression and worse will follow. Clinical trials are crucial to learning how to better fight and manage the various forms of cancer in order to slow the staggering human costs of cancer.

On the financial side, the numbers are huge. The overall costs of cancer were  estimated by NCI at $ 100 billion for 2006.  Those costs are also revenues for many academics, researchers and businesses. Cancer is big business, and clinical trial are an important aspect of treatment, and costs/revenues.

Beyond traditional costs and revenues, there are other costs, including tort system costs. As science continues to develop, more and more of the cancers will end as the subject of lawsuits against product manufacturers, chemical companies, premises owners and others.

Those stark realities are just some of the reasons why it's important that our nation focus on improving clinical trials for cancer treatments. Among other things, one clear need is to speed up approval processes and testing processes to more rapidly translate new science into clinical results. These and other suggested improvements are laid out in the new report  from a blue ribbon committee of scientists, with their report issued through the National Cancer Institute. A three page summary is here. The New York Times followed up with an editorial this past weekend to highlight the need for change, including more speed and more focus. For  the personal observations of a cancer survivor and doctor who is personally and professionally active in clinical trials as both a patient and an advocate, go here to Wendy Harpham's wonderful blog:  Healthy Survivors.

The entire report is important. From the three page summary,  set  out below is one part that policy makers and tort lawyers especially need to consider as to biomarkers. When and as the recommendations are followed, changes are sure to follow for tort, medical monitoring  and insurance litigation:

"Incorporating Innovative Science

Progress in the treatment of cancer patients depends on the effective incorporation of scientific advances into clinical trials. For example, to achieve the goals of targeted cancer therapy, biomarkers (predictors of a response to a particular therapeutic intervention) increasingly are being used to select which treatment strategy is most likely to benefit individual patients. To advance this field, NCI should, among other actions, mandate that biospecimens collected from patients in the course of Cooperative Group trials be submitted to standardized central biorepositories supported by a national inventory and a defined peer-review process for accessing specimens for study.

The Cooperative Groups should lead in developing and testing innovative designs for clinical trials that evaluate multiple therapies, combinations of therapies, and biomarkers. The National Institutes of Health, including NCI, should take a more systematic, multidisciplinary, and dynamic approach when developing standards for new scientific methods and technologies used in trials, to ensure appropriate and consistent use."

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The ABA Journal links to an article arguing that a revolt is underway. The number of commenters, and the views, seemed surprising. Judging by the commenters, it seems there are plenty of lawyers out there who are indeed distressed by recent events in the financial world.

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Yesterday's post was tied to US FAS 5 rules and related disclosures regarding contingent liabilities, such as mass tort claims. As the financial world goes global, there will be change ahead as the International Accounting Standards take control. It will be interesting to watch the evolution from FAS 5 disclosure to isclosures under  IAS 37 . The subject includes political considerations, and provoked past comments after a 2005 exposure draft for IAS 37.

Go here to use Deloitte's complete collection of infomration on 2010 proposed amendments to IAS 37 and other expert materials from Deloitte. The same sources on just IAS 37 also are pasted below from Deloitte's page:

IASB Reexposes Proposals for the Measurement of Liabilities in IAS 37

For more information, see the press release on the IASB’s Web site as well as Deloitte’s January 2010 IAS Plus Update. •"

"Contingencies

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Courtesy of a friend, I learned about Towers Watson publishing this report summarizing public company FAS 5  disclosures regarding asbestos claiming as set out in 10Ks. The report is well done and interesting. Note especially the analysis of the types of information that are and are not disclosed in typical reports.

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Look to the right under "James Hardie" for prior posts regarding legal issues related to James Hardie's efforts to use a private foundation to resolve asbestos claims, and related claims against officers and directors that ended in convictions.  Appeals are now in argument for two weeks or so. Popular press articles on the appeal are here and here.

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Spring break included time to read several books. Some are relevant to a GlobalTort topics, including one highly relevant to the deep flaws in the usual chapter 11 approach to dealing with asbestos and other mass tort situations. 

As regular readers of this blog know, I'm anything but a fan of the outcomes in most (not all) of the asbestos chapter 11 cases because the cases  are conducted with large measures of secrecy, and too often produce results in which billions of dollars are paid out to people who would not be paid in most (any?) state court tort system. The frustration is not just academic - I tried one of the cases to judgment (trial in 2007, judgment in 2008), and then briefly was involved in a second such case until a grossly incorrect ruling eliminated the "standing" of the client.  In both cases,  state law was by and large  ignored by the parties in settlements they crafted to generate hundreds of millions of asbestos claims. Worse yet,  the chapter 11 bankruptcy judges rubber stamped almost all of the settlements, thus aiding and abetting the trampling of state law and common sense.  

So, to learn more about how chapter 11 could be so flawed, I read  Professor Lynn LoPucki's  2005 book:  Courting Failure: How Competition for Big Cases is Corrupting the Bankruptcy Courts.   It's a great telling of a depressing story, with large amounts of objective data to prove the conclusion set out in the book's title. Go here for a small website that includes his database of research on chapter 11 cases and related information. Go here for a detailed review of the book. Go here to download a related paper that tells much of the story in fewer words.  

A key question the book addresses is: when  legal systems compete with each other, does decision-making move towards or away from faithful application of existing law ? According to Professor LoPucki,  the answer plainly is that competition between legal systems results in a “race to the bottom” as systems ignore established law in favor of expedient outcomes that appeal to the desired legal clientele.  To prove the point, the book begins by reminding readers of the corporate law history in which New Jersey and Delaware  gutted existing corporate law in order competed to attract corporate charters. That introductory reminder is by itself a valuable lesson, and a reminder of why  "trust busting" later became part of our legal vocabulary when New Jersey trusts were attacked by new federal laws and enforcement efforts. 

Courting Failure then turns to its real focus,  the history of and reasons behind the extreme and objectively proven forum shopping that has caused so many the filing of so many large public company chapter 11 cases in Delaware. As the boo explains, Delaware was once a legal "backwater" with only one bankruptcy judge.  Delaware's status changed because of, among other things, a pair of Delaware bankruptcy venue decisions that were never overturned in court or over-ridden by statute, thus paving the way for today's concentration of  chapter cases in Delaware . In s a similar vein, Prof. LoPucki also details several other Delaware rulings and actions that could not possibly be explained by any rule of law learned in courses on federal jurisdiction.  And, Professor LoPucki's subjective points are nicely buttressed by objective data analyzing chapter 11 case filings by public companies.

Prof. LoPucki's ultimate point is that Delaware's bankruptcy court created its own significant industry by providing "predictable" bankruptcy rulings that have little to do with bankruptcy law, and the chapter 11 system failed when judges rubber stamped outcomes. As to rubber stamping, Courting Failure explains that too many bankruptcy courts approve a plan if there are no objections. Therefore, chapter 11 plans can be and are approved,  and can go effective, if objectors are eliminated through erroneous trial rulings or special deals. As a result,  the trial court proceedings often are the final word. Courting Failure also is helpful because it teaches enough about bankuptcy politics and history to better understand how and why it is that the Chrysler  and GM cases so quickly shot through the chapter 11 system. . 

The book does not focus on the asbestos chapter 11 cases. That said, it's  plain that the same principle applies to and explains why the chapter 11 asbestso plans often (not always) disregard the actually applicable state law rules that should govern the claims. 

My overall message about the book ?  Read Professor LoPucki's book to better understand how and why competition between legal systems is indeed a recipe for a race to the bottom. Read it also for proof that the "forum shopping"  accusations so often lobbed against some plaintiff's lawyers apply at least  equally strongly to some corporate lawyers and their clients, aided and abetted by other participants in the bankruptcy system who have found ways to turn "predictability" to their own ends. The biggest lesson of all is that agreed chapter 11 plans  and settlements too often are a terrible outcome on the merits. 

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The provocative question in the title of this post is a question posed by Erik Gerding in an insightful post at the Conglomerate. It's part of a collection of three good posts, with links to others. The Epicurean Dealmaker has been silent for a month; hopefully he or she will soon comment.

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Apparently I missed an important day in law school. That is, I assume there was a day in which some professor explained when and how it is  that bankruptcy courts were granted the power to do anything that's expedient towards allowing the debtor to declare victory in a chapter 11 case. And, apparently that power expands exponentially if some well-paid pro-debtor partisan will put in a reed thin, practically untestable declaration asserting, in effect:  

The debtor really needs this injunction to be issued to block some state law rights of other people because gosh darn it, the debtor messed things up to the point it's in a self-created crisis. The  way we can do something that appears maybe useful in the short term is to just take the deal on the table, not ask too many questions,  and move forward fast.  It's just too darned slow, expensive and annoying to conduct a chapter 11 case any other way.

A really candid declarant also would go on to say:

Due process is a nice concept,  but it doesn't work well in chapter 11. Providing due process takes too long, and it costs too much. The debtor is  so darned messed up from its past promises that it just can't afford to honor them. The debtor messed up really badly and so it can't afford the  time, expense , uncertainty and cash flow hiccups of a chapter 11 case that would provide due process  that respects and protects the state law rights of the tort victims and the co-defendants in the thousands of pending tort cases. That's especially true for the rights of thousands of tort victims who we cannot quickly  cut a deal with because the victims are spread out around the country, some are grievously hurt and want lots of money, and these darned claimants have not been kind enough to all hire Wall Street lawyers we like to work with to cut quick deals towards achieving the goals of the well-capitalized masters of the universe. Worse yet. the tort cases all include thousands of co-defendants who've  made cross-claims against the debtor. They are  even harder to deal with in some ways.. For example, lots of those defendants have insurance company lawyers,. and the insurance companies almost never let them do anything important in less than a couple of years. And, some of the insurers have annoying reinsurance treaties that offer them an excuse to claim that each case is unique instead of just a fungible commodity, even though at the end of the day we all know that the insurers only care about the money.

In short, judge, our Excel spreadsheet deal calculations depend on people being paid based on multiples of free cash flow, and those calculations produce much lower numbers if we have to factor in uncertainty. So, please help us get our deal done and earn our administrative priority fees by  holding your nose, issuing that injunction, and dumping all the uncertainty onto the victims and the co-defendants. Somewhere out there there must be rule of law that says we should give a fast process to ignore the constitution to the financial geniuses who messed up the most, and we should not worry too much about some people who have suffered crippling injuries. Besides, there are trade creditors out there, not to mention all those busy, busy hedge fund traders who are arbing the bonds and want to get a deal done now so they can lock in their profits on the trades and move on to the next opportunity to make some money by using chapter 11 to subvert state law and due process.  The debtor really would appreciate  you giving the value of certainty to the 363 sale buyer and the creditors who are easier to deal with than all these creditors involved in all those darned tort claims pending in state and federal courts around our nation.    

The reason behind the above ? The opinion this week in the legal farce commonly known as the General Motors chapter 11 case.  The opinion is by district judge Kaplan, and affirms the bankruptcy court''s order enjoining prosecution of tort claims pending as of the petition for chapter 11.   Susan Beck's summary article kindly includes links to the opinion and some of the briefs.  Read them at your peril - the results are absurd and the reasoning has nothing to do with real due process.

.  

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This AmLaw article by Alison Frankel details Boeis Schiller & Flexner  joining the fray in tort claims arising from Chiquit'as admitted payments to a terrorist group. The article includes a link to the undelrying complaint. It alleges a series of illegal payments, Chiquita's guilty plea, and  claims that the payments  resulted in deaths and injuries to clients. Set out below are the key introductory allegations from the complaint:

                                                                  INTRODUCTION

1. For a period of more than six years, Defendant Chiquita Brands International, Inc.
(“Chiquita”) knowingly and intentionally made over one hundred payments totaling more than
$1.7 million to the United Self-Defense Groups of Colombia (Autodefensorias Unidas de
Colombia or “AUC”), a violent terrorist organization. Chiquita’s payments were used by the
AUC to finance a widespread and systematic campaign of massacres, extra-judicial killings,
torture, murders, forced disappearances, forced displacements, and other violent acts against
civilians in the regions of Colombia where Plaintiffs or their deceased family members lived and worked.

2. In 2001, the United States government designated the AUC as both a Foreign
Terrorist Organization and a Specifically-Designated Global Terrorist. Consequently, it is a
crime for any person or entity to provide material support or engage in unauthorized transactions with the AUC. By making payments to the AUC, Chiquita regularly, repeatedly and knowingly Case 0:10-cv-60573-XXXX Document 1 Entered on FLSD Docket 04/14/2010
engaged in criminal conduct that violated federal law and provided practical assistance and
material support to a terrorist organization.

3. In 2007, the United States Department of Justice (“DOJ”) charged Chiquita with
Engaging in Transactions with a Specially-Designated Global Terrorist, in violation of 50 U.S.C.
§ 1705(b) and 31 C.F.R 594.204. After being charged, Chiquita admitted that its payments to the AUC were unlawful and pled guilty to the offense. In conformity with its plea agreement,
Chiquita was convicted of a felony, agreed to a criminal fine of $25 million, and was placed on
corporate probation for a period of five years.

4. The Plaintiffs are family members of individuals who were killed by the AUC or
are individuals who were themselves seriously injured by the AUC as a result of Chiquita’s
support for the AUC and its operations. The Plaintiffs now seek compensatory and punitive
damages arising from Chiquita’s unlawful financing of terrorism and its violations of
international law under the Alien Tort Claims Act, 28 U.S.C. § 1350, the Torture Victims
Protection Act, 28 U.S.C. § 1350 note, and Ohio law.

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For anyone lookinig to buy into the Chinese asbestos-cement industry, go here to read about an apparently substantial investment report on the indutstry, as advertised for sale on BusinessWire. Amazing to see events repeated around the globe.

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It's usually not good for the defendants when the popular legal media is picking up verdicts from asbestos trials. That's true again this time; go here to see the coverage. Trying cases is part of life and a good defense, but there are indeed risks.

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Class action law continues to evolve in Canada. This article  from McCarthy Tetrault provides a  link to and commentary on a recent and controversial appellate decision  approving  certification of an antitrust class involving DRAM chips.  Key excerpts are set out below:

"The DRAM litigation has been closely followed by specialists in the fields of class action and competition/anti-trust law, both in Canada and the United States, where several parallel actions are underway. Until recently, no Canadian court had ordered a price-fixing case certified for a proposed class, like this one, which comprises both direct and indirect purchasers (at least where certification was contested).

The main problem for plaintiffs in these cases has been the difficulty in showing that the class as a whole suffered harm. It is not clear how a plaintiff can prove which buyers actually paid for the alleged price increase, and which suffered only some or no loss at all (either because it was absorbed by someone else or passed on, in whole or in part, to another buyer). These issues threaten to complicate the trial with countless individual inquiries, rendering the case as a whole unmanageable as a class proceeding."

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If you think Toyota is having a bad year, think about Eternit entities and its executives (not all are Eternit entities are presently related).   The long arm of criminal law continues to reach out and touch Eternit entities.  In Italy, trial goes forward in a week on thousands of criminal charges arising from deaths and injuries at former asbestos cement manufacturing plants in Italy. Some of the hearings are being shown on Italian television. Go here to see the accounts from a victim-oriented website. Meanwhile, similar issues are ongoing in Pakistan. The full article on Dadex Eternit Pakistan  is here.

So, what do you think ?  Should executives, officers and directors worry about "toxins,"  risks and possibilities even before epidemiology "proves" the harms with double blind studies ?  

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A new example of the global spread of environmental consciousness as it applies to persons who work at or service manufacturing plants that utilize "toxins."   

As a result of a cancer death of  person associated with a manufacturing plant in Pakistan, the CEO of Dadex Eternit faces  a summons to testify in connection with a complaint and order from environmental authorities in Pakistan. The news is provided by  an article  in  The News International. 

Dadex Eternit is a maker of chrysotile board and plastic pipes. According to its website:   " Dadex was established as a public limited company in 1959. Headquartered in Karachi, our two manufacturing facilities, based in Karachi and Hyderabad, are equipped with state-of-the-art machinery. Dadex also has its own rubber plant located within Karachi Factory, producing high quality rubber rings (according to international standards) for our pipes."

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Here is the link to download from SSRN a paper on where Chinese tort law might be headed over time. Hat tip to Pointoflaw for pointing out the article.

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