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

Another day, and another company makes strategic use of chapter 11 to cleanse itself of tort claims, with these claims arising from asbestos litigation.  Today's company ? Circor's  Leslie Controls, a past maker of pumps used on Navy ships.  The WSJ article  is here, and the company's press release is here. Unlike the last two filings, this one is a prepack.

Once upon a time, law professors taught law students that tort law was a subject controlled by the states under the genius of the dual federal/state system. One certainly hopes they've amended their lectures to review and explain the federal bankruptcy court takeover of a significant portion of tort  claiming. 

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It's great to see and feel a message starting to get through, as illustrated by legal media coverage of last week's Perrin asbestos bankruptcy conference.  For some time now, I've been trying to communicate the message that the asbestos chapter 11 cases are important because they are setting precedents that will be applied to other mass tort situations, and that the issues ultimately are global in scope. To work further towards that end, I was delighted to accept Lynnsey Perrin's invitation to co-chair last week's conference with John Cooney. John is an excellent and thoughtful plaintiff's personal injury lawyer here in Chicago, and we've known each other since the mid-1980s.

To try to spread the message,  this prior post included my conference handbook cover letter message to attendees. To reiterate a key point from the letter:  

These chapter 11 cases, however, matter for more than just asbestos claiming. Indeed, the highly unusual world of asbestos is only part of the larger scene in which chapter 11 is becoming or is being considered as the way to resolve mass tort claims and other product liability claims. The current hot issue is whether the BP oil rig fiasco will be resolved using chapter 11. In addition, chapter 11 procedures and trusts or funds are in place or contemplated for breast implant claims, silica claims, claims arising from sexual abuse by Catholic priests, and Chinese drywall claims. Consider also the Chrysler and GM chapter 11 cases, and their impacts on non-asbestos tort claimants. Note also the Tronox reorganization arising out of massive environmental risks. Note further the Third Circuit’s recent sua sponte grant of rehearing en banc in the GIT/Narco case that has previously caused 19 state Attorneys General to file an amicus brief regarding disposition of insurance-related rights and the scope of chapter 11 injunctions.

 The message is getting out, as indicated by the current online issue of the Madison-St. Clair Record. The newest online issues includes an article by a legal reporter, Aricka Flowers, who attended the conference.  The article's slant indicates the message is getting out that asbestos chapter 11 cases are indeed precedents for more global mass tort issues, with an example being the sudden and powerful oil rig fiasco that will probably cost BP more than the $ 20 billion fund created to date.  The article also includes some great quotes from some of the judges who kindly took the time to attend and offer their insightful comments. To further spread the message, the full text of the article also is set out below:

 Asbestos bankruptcy conference highlights Chapter 11

CHICAGO - An asbestos litigation expert said rules being developed in asbestos Chapter 11 cases are serving as precedent for resolution of other mass torts.

Asbestos defense attorney Kirk Hartley of Childress Duffy Goldblatt, Ltd. in Chicago co-chaired an asbestos bankruptcy conference earlier this week that featured discussions on how bankruptcies are affecting asbestos and tort litigation as a whole.

"The conference served as an opportunity for co-defendants in asbestos litigation to start learning about and paying attention to the Chapter 11 cases," Hartley said.

"Some are starting to realize that the more sophisticated entities are using Chapter 11 strategically to exit the tort system regardless of whether they are actually insolvent. The impacts are profound for both plaintiffs and co-defendants."

Plaintiff's attorney John Cooney of Cooney & Conway in Chicago co-chaired the conference with Hartley.

In light of recent Chapter 11 filings of asbestos targets Bondex International and Garlock Sealing Technologies, the conference covered the timely issue of how corporations are using Chapter 11 to seek refuge from lawsuits.

One particular session, "The Continued Impact of the General Motors and Chrysler Bankruptcies: Upcoming Issues on Estimation, Liability and the Effect on Co-Defendants," discussed the Chapter 11 filings of the major automobile manufacturers and how they impact pending and future lawsuits, sparking heated debate on the issue of transparency in bankruptcy trusts.

The session's moderator, Richard Ames of California-based Carroll, Burdick & McDonough, stated that the trusts make it much more difficult - and sometimes prohibit - attorneys from getting access to documents related to claims that have already been paid.

But Joseph Rice, co-founder of the personal injury firm Motley Rice in Mt. Pleasant, S.C., shot back saying that defense attorneys would have to go through the regular discovery process if a company hadn't filed bankruptcy. He said defense attorneys could actually get access to information on old bankruptcy trust claims by going through the typical discovery process instead of expecting plaintiff's attorneys "to do all the work for them."

Rice challenged asbestos defense attorneys by saying that he has been trying to get defendants to create a national database of job sites that were involved in cases surrounding successful bankruptcy trust claims. He went on to say that if any of the defense attorneys agreed to do so, plaintiffs would be willing to pass on information regarding claims, which got a laugh, but no takers.

One of the most anticipated sessions of the conference was a judicial panel comprised of bankruptcy and state court judges from across the nation, including Madison County Circuit Judge Daniel Stack. Stack presides over one of the busiest asbestos dockets in the country.

Other speakers were Judge Judith Fitzgerald, U.S. Bankruptcy Court for the Western District of Pennsylvania; Judge James Murray Lynn, Philadelphia Court of Common Pleas; Judge William D. Maddux, Circuit Court of Cook County and Judge. Randall J. Newsome, U.S. Bankruptcy Court for the Northern District of California.

Newsome lamented the state of asbestos litigation, blaming what he sees as no change over the last 30 years on the fact that there is no interaction between bankruptcy and state court judges.

"It's really no surprise that I don't see a difference between now and 1979 because there is no system in place," Newsome said.

"No one has ever put a legislative system in place that would encourage or require us to have any interaction whatsoever in this particular area. I think it's a real sad state of affairs that as I listen to the program today it's all the same thing; nothing's changed. It is like Groundhog Day."

Hartley said the judicial panel offered a unique opportunity to look at asbestos litigation from the vantage point of key players that decide the fate of many cases.

"The conference was important as serving as the first occasion in which bankruptcy judges and state court asbestos judges have actually talked to each other about their respective legal rules and practices," he said.

During the discussion, Fitzgerald said there is a serious misconception about the way the bankruptcy process operates.

"We have a tendency to be frequently looked at by people and entities as an appellate court," she said.

"Of course, we are not that and there are several guidelines that prohibit the bankruptcy courts from acting as an appellate court. But, I do think there are many cases in which we are being looked at as a new opportunity or open window and that really isn't what the bankruptcy process is about for claimants."

The judges also discussed the amount of time it takes for a mesothelioma case to go to trial in their jurisdiction.

Stack said the cases went to trial faster than any other lawsuit type in Illinois. He went on to say that a suit can be expedited in Illinois if plaintiff's attorneys prove that their client is suffering from mesothelioma.

If the mesothelioma victim is deceased, the plaintiff's attorney can file an affidavit of hardship for the family and get the trial expedited.

"I don't think you can ordinarily get that in a medical malpractice or other type of case unless you show some sort of a circumstance," Stack said.

There was also debate about Congress' inability to pass legislation, like the Fairness in Asbestos Injury Resolution Act that would put additional controls on the bankruptcy trust system.

Newsome said there is a systematic problem if otherwise healthy companies have to file for bankruptcy solely due to asbestos litigation.

Conversely, he said it is also a bad situation if plaintiffs are not being compensated in a timely manner because of the inherent delays in the bankruptcy process. Because of this, he said there is a strong need for legislators to make policy changes and create a systematic solution to the problem.

During the conference, Hartley responded by saying that policymakers might be in a better position to make a move on legislation if there was more transparency with regard to the bankruptcy trusts.
 

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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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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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As described in this prior post of a little less than a year ago,  a bankruptcy judge in Pennsylvania last year wrote a cogent opinion that thoroughly reviewed - and trashed -  the Skinner chapter 11 plan. Why ? Because the Skinner plan boiled down to keeping alive a corporate body that was financially dead unless someone clever could find an artificial means to cause the corporate body's  insurance policies to remain alive to generate cash for asbestos and other creditors.  The corporate death had occurred without the debtor having paid even one asbestos claim prior to filing its chapter 11 petition. But, lawyers for asbestos claimants found a way to try to work around that little problem. To incentivize all creditors to favor asbestos recoveries and vote for a chapter plan, the plan proposed that 20% of all asbestos judgments would be paid to the non-asbestos creditors that otherwise would get nothing. In short, a "win-win" that would keep the corporate body alive for the benefit of all creditors, and would hurt only the insurance companies paying the judgments. So, the court rejected the plan as not possibly being in good faith and converted the case to a chapter 7 proceeding.

Happily, a friend just sent along a March 29 opinion in which the district court has now rejected the appeal pursued by the asbestos claimants. The affirming opinion, by Chief Judge Gary Lancaster,  minces no words in explicitly affirming all the reasoning of the bankruptcy court, and rejecting the bona fides of the plan for all the reasons explained by the bankruptcy judge, including "collusion."  The court also bluntly noted that the entire affair was even worse because it had generated some $ 2 million in legal and consulting fees for the bad faith plan. Who knows - maybe there will be a spring miracle and the US Trustee's office will move to recoup the fees and costs wasted on a bad faith plan ?

Will the asbestos creditors in Skinner seek an appeal to the 3rd Circuit ? My belief is: no. Why ? Because the 3rd Circuit has under advisement an opinion in an asbestos bankruptcy case with facts not so very different.  The case is commonly known as NARCO/GIT.  The case is described in a prior post, and also in this post regarding 19 state attorney's general  opposing the plan. The facts in GIT are not exactly the same, but do involve creating far more claiming in bankruptcy than had ever happened in the real world of the tort system. IN the real world outside of bankruptcy.  less than 200 silica claims before chapter 11, but then over 4,500 were filed in the chapter 11 case. Thus,  it's easy to see some parallels, and so one doubts the plaintiffs want to help the 3rd Circuit see other examples of the unseemly goings on in too many (but not all)  of the asbestos chapter 11 cases.  To make life easier for those on hand-held devices, set out below are two points from the prior post about the issues on appeal in GIT:

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"Second, Hartford points out that the "silica trust" is not funded by the debtor, and instead is to be funded only by monies paid out from some $ 500 million of GIT insurance policies that contain "asbestos exclusions." The asbestos exclusions render the policies unable to pay asbestos claims. Hartford Brief at 9-10. As Hartford argues, it certainly is illogical to argue in an asbestos bankruptcy that is "necessary" to resolve silica claims to be paid from insurance policies that can not be used to pay asbestos claims.

Third, Hartford contrasts silica claiming facts before the chapter 11 petition was filed to the silica claiming facts after the petition was filed. Prior to the petition, GIT had been sued in less than 200 silica cases, GIT had not paid out any money on silica claims, and its insurers had only paid out $ 312,000 for silica claims. Hartford Brief at 8. In contrast, after the petition was filed, silica claims were soon submitted in droves (over 4,500). As Hartford points out, the sudden spate of claims was a win-win for everyone but the insurers since the spate of claims gave GIT votes needed to approve its plan under section 524(g), and payments by the trust on the claims would over time generate money for claimants and their lawyers, with the claims judged by the trust under a limp "proof" standard. Hartford Brief at 9-14. Thus, everyone would be happy except the insurers called on to pay the silica claims after approval by the trust."

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As explained before in many posts categorized under "asbestos bankruptcy,"  the situation in the US today is that we have two different compensation systems for persons suffering from asbestos-related disease. They are the tort system and the bankruptcy trust system. The two have been operating largely independently, but real change is starting to bring the two systems together. 

Specifically, two recent orders from state court "asbestos docket judges" mark meaningful and much needed progress in accounting for the billions of dollars that are being paid out annually through asbestos bankruptcy trusts. Both orders are part of "Case Management Orders" (CMOs) that are used by trial judges to streamline case management by providing one set of rules applicable to all (or most) cases on an asbestos docket in a particular county or state (Texas has a statewide asbestos MDL).

In short, both of these recent orders require disclosure of claims submitted to trusts by asbestos claimants. This is an important first step. The order from West Virginia is especially important because it goes on to include several additional terms that are much needed to create an intersection between the two now separate systems. The following provides a summary.

•       In Pennsylvania, the Court of Common Pleas of Montgomery County issued a February 22, 2010, CMO requiring plaintiffs to disclose all bankruptcy trust claims at least 120 days prior to trial. See paragraph 10.

•       In West Virginia, the Kanawha County Circuit Court, issued a March 3, 2010 CMO order that adds a lengthy new paragraph 22 to deal with asbestos trusts . Like the February 22 order in Pennsylvania, this order require plaintiffs to disclose all existing bankruptcy trust claims at least 120 days prior to trial. The West Virginia order also goes much further, and appropriately orders plaintiffs and their counsel to take several other affirmative steps to ensure that tort system defendants are fully aware of and benefit from future recoveries in the trust system. Specifically:

1.     Section 22(A)(2) requires counsel to disclose whether any claims to trusts have been submitted to a trust but deferred or delayed, This provision is pertinent because delays and deferrals are permitted by the terms of some trusts and/or their Trust Distribution Procedures (TDPs, as they are known). Defense counsel typically view such terms as having been crafted to allow gaming the two systems by allowing the plaintiff to bring and resolve state law tort claims before pursuing trust claims. Plaintiff’s counsel are of course free to argue a plausible alternative reason for allowing plaintiff’s to delay or defer submitting claims until after the tort claim is over

2.      Section 22(A)(2) requires a good faith investigation of potential claims against trusts and requires an affidivait from plaintiff or plaintiff’s counsel to affirm the good faith investigation of potential claims against trusts.

3.      Section 22(C) addresses trial use of the claim forms and ancillary documents. Among other things, Section 22(C) precludes plaintiff from arguing privilege or confidentiality to try to keep the claims out of evidence.

4.      Section 22(D) explicitly allows underlying case co-defendants to pursue discovery against asbestos trusts (subject to federal law limits, if there are any that apply in this setting), and  explicitly requires plaintiff to provide any consents or permissions that any trust may request.

5.      Section 22(E) specifies that defendants that lose a trial judgment to a plaintiff are entitled to offsets for liquidated amounts paid by  trusts, and requires related disclosure of the total amounts recovered or “reasonably expected to be recovered” from bankruptcy proceedings or settlements with tort system defendants.

7.      Section 22(E) further provides that if a plaintiff obtains a judgment against a defendant, then the plaintiff must assign to the judgment defendant the right to all future asbestos trust payments.
 

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What a great legal term of art - "scheme of arrangement." The term has multiple but related nuanced meanings and applications because "schemes" are essentially corporate law opportunities to end or alter the business life or structure of a corporation. Depending on the nation and the particualr use, schemes may have varying outcomes when used in the diverse ways that are possible in the various nations that arise from the former British Empire.

This post focuses on an attempted "scheme" under Australian corporate law. In this instance, the scheme consists of the efforts of a public company, CSR, to move forward with a "demerger" (a "spin-off"  in the US) that would split one public company  into two "more focused"  public companies. Only one of the emerging companies would, they hope, be liable for asbestos bodily injury or property damage claims that will or may arise from past ownership of a crocidolite mine and sales of various asbestos-containing products. Thus, by dividing the ompany into two peices. the proposed demerger would reduce the amount of corporate assets available to pay the current and potential future asbestos claims that arise from past business operations. The opinin explains the numbers as follows:  "In its financial statements for the half year ended 30 September 2009 CSR has recognised a provision of A$446.8 million for current and future asbestos liabilities. This comprises 10% of CSR's total assets as at 30 September 2009 but, based on the pro forma balance sheet produced by CSR as at 30 September 2009, would comprise 18% of New CSR's assets at that date."

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Pasted below are key excerpts from a February 18 Wall Street Journal Australia article by Miland Rout which provides news of a $ 2 million (AU) asbestos mesothelioma settlement for the death of a young father. The amount is news in itself.

From my vantage point, however,  the even more interesting part of the story is the assertion - assumed to be true for present purposes - that asbestos defendants CSR and James Hardie will now proceed against each other to resolve which entity should pay how much of the settlement. According to the articles's description of statements by plaintiff's counsel from Slater & Gordon, the companies apparently are no longer observing some sort of understanding or agreement on how much each should contribute.

So, what does one say about intercompany allocation battles? My personal view is that we will see more cross-claiming ahead because some companies need to transfer fault and expense to others in order to survive. In a related vein, more of the cross-claiming I think will involve claims by current tort sytem defendants against "asbestos trusts"  or foundations established by entities that have used chapter 11 (rightly or wrongly) to exit the tort system.

Why cross-claim? One reason  is that the asbestos tort system today is farcical in the sense that the most culpable defendants exited the tort system early and did so far, far too cheaply. Simply put, Manville, Unarco, Raymark, and various insulation and boiler makers (e.g. Eagle-Picher, Babcock & Wilcox), and some other "early movers," paid far too little to exit the tort system. The result? Some (not all) victims are undercompensated and many (not all) remaining tort defendants are now paying far too large a share for asbestos claims.

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Today, a new example of issues that arise from secrecy in asbestos litigation. The question in short: How often do asbestos trusts diagnose claims 37 or so years after death, and how often and how much do they pay out for claims that would ordinarily be barred by statutes of limitation?

Chapter 11 asbestos cases, and asbestos trusts, are noteworthy for a penchant for secrecy. The penchant for secrecy applies even though secrecy is perhaps the greatest antithesis of due process, and was an especially detested feature of Star Camber proceedings, as described here in simple terms and here at some length in a wonderfully easy to read but thorough 2009 law review article written by Stephen Wm. Smith, a United States Magistrate Judge in the Southern District of Texas, Houston division. See "Kudzu in the Courthouse: Judgments Made in the Shade," 3 Fed. Cts. L. Rev. # 2, 177 (2009).

Judge Smith explained the problems with secrecy, at 214:

"In our common-law tradition, the exercise of judicial power is an inherently public act. A court of record, by definition, is a court that acts on the record, placing its rulings in the public domain, whether by pronouncement in open court, handwriting on a parchment roll, typing on a docket sheet, or digital key-strokes on-line. It is not merely that publicity has many virtues--promoting public confidence in courts, enhancing reliable fact-finding, and curbing judicial abuse of power. Nor is it simply that the people have already bought and paid for the right to know what their judges do with their office. Rather, it is the public record of judicial decisions that renders those decisions legitimate. Philosophers from Kant to Rawls have written treatises on why this is so, but one of our colonial forebears nailed it with only eight words: "Justice may not be done in a corner."

How does secrecy play out in asbestos litigation ? In  many ways, and they are not all covered here.. For prior examples of asbestos trust secrecy, go here (absence of material data about Manville Trust payments to the not sick), and here (Manville Trust withdrawing data previously made public under licensing agreements).  Here's a new example that arises because of an opinion sent along by a friend out east when he enountered a new federal district court opinion that involves asbestos trusts.

According to the pro se complaint,  a Mr. Palermo worked with asbestos-contiaing products while working for Halliburton, and "[o]n June 6, 2003, Palermo was posthumously diagnosed with mesothelioma "by a tribunal of asbestos experts who were part of the Extraordinary Claims Panel of the Manville Trust." (Am. Compl. P 17.)  How odd is that? To me, it's quite odd since the complaint also alleges that Mr. Palermo had died back in 1966 of metastasis from "stomach cancer."

If true, the allegations  indicate that a diagnosis was made some 37 years after death. One may also assume a payment was made by the Manville Trust. The complaint goes to on complain - unsuccessfully - that another trust would not make a payment.

So, what does this all mean in the larger context?  It's fairly easy to think that Mr. Palermo may well have actually died of peritoneal mesothelioma due to asbestos-inhalation. And, surely there are arguments to be made for paying compensation whose deaths were wrongfully caused, regardless of the date of death, but those arguments have not succeeded when statutes of limitation are applied.  So, for purposes of social policy decision-making, one does have to wonder how often claims of some age are made, how the post-death diagnosis was made (old tissue ? medical records? narrative?), and how much money is paid out each year by the trust for claims of this ilk.


Can answers be obtained? I don't know, but will send an email off to the Manville Trust and will let you know if I hear anything back.
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Here are key excerpts from the opinion in Gail Garner v. DII Industries, 2010 U.S. Dist. LEXIS 9583 (Feb 4. 2010).

"Viewing the allegations in the amended complaint as true, the following are the relevant facts for consideration of the present motion. The decedent, Angelo Palermo ("Palermo"), was a union insulation mason for twenty-nine years from 1937 through 1966 in the construction asbestos industry. He spray coated and handled asbestos-containing products while working for one or more of the Haliburton or Harbison-Walker entities. Palermo died on April 23, 1966, at the age of 51 years. (Am. Compl. PP 14 & 34.) His death certificate listed the immediate cause of death as acute liver failure due to "metastasis cancer due to primary stomach (place of origin)." (Am. Compl. PP 11-15.)




On June 6, 2003, Palermo was posthumously diagnosed with mesothelioma "by a tribunal of asbestos experts who were part of the Extraordinary Claims Panel of the Mansville Trust." (Am. Compl. P 17.) On April 4, 2006, Plaintiff filed a claim with DII Industries, LLC, and, the following day, filed a claim with the DII Trust, with regard to her father's death. Defendants eventually rejected the claims, and a pro bono evaluator confirmed Defendants' denial. (Am. Compl. PP 18-27.) (emphasis added)

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I'm setting aside James Hardie and Australia for a few days. News on Friday provides a great springboard for some comments in the same general area of what's new in mass tort resolution thinking, and some points related to corporate actions to cope with/avoid/limit the corporate damage from mass tort claims.
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How does big tobacco admit it  faces massive global tort warfare ahead ? By hiring David Bernick away from Kirkland & Ellis, as was announced Friday - see article at the bottom.

Why is hiring Mr. Bernick so telling ? Look at what he has done.  K &  E  teams headed up by Mr. Bernick have often (but not always) won some of the most  difficult battles in mass tort litigation, and have included various creative and massive efforts to buy time and/or survival for corporate defendants. For example, his team successfully defended Grace executives in a criminal trial involving asbestos regulations and "tremolite contamination" in mined products; that trial would have been easy to lose due to asbestos hysteria. The team also was winning the W. R. Grace asbestos bankruptcy trial by thoroughly discrediting the seamy side of asbestos claiming by the not sick, and so they capitalized by reaching a fantastic mid-trial settlement in the  bankruptcy. Bernick and others  also did a business-saving (albeit unconstitutional) deal  in chapter 11 to free Asea Brown (ABB ) from its Combustion Engineering asbestos liabilities, and obtained that result despite the stench from ABB's   $ 20 million payment to plaintiff's counsel.  Mr. Bernick and others also undertook an ill-fated but brilliant effort on behalf of car companies to use the Federal-Mogul bankruptcy to convene one massive  Daubert hearing in federal court regarding whether brake linings with asbestos actually cause cancers. Even though the latter effort did not succeed on the merits; it bought much needed time for car companies at a time when asbestos litigation was at one of its most frenzied points.

One cannot help but wonder the price. If Mr. Bernick can do for PM what he has done for other entities, the financial dividend for PM shareholders will be huge. Indeed, Mr. Bernick actually will add real value to the bottom line with actual creative thinking and hard work. That said, perpetuating smoking is anything but the work of angels.

What issues are out there to keep Mr. Bernick busy and challenged ? A recent example arises from the disastrous $294 million verdict entered last fall in one of the thousands of pending post-Engle tobacco cases that are being  set for trials in Florida.  If one took that verdict into bankruptcy court and handed it to the "liability estimators," they could generate a future liability range of numbers that probably would include numbers in the trillions of dollars. Those numbers also could be offered in bankruptcy court to support fraudulent conveyance claims involving various corporate moves by tobacco companies. Recall, for example, that Asarco was hit this past year with a $ 6 billion dollar bankruptcy court judgment based on fraudulent conveyance claims tied to corporate activities undertaken in anticipation of tort and environmental claims.

That said, the bankruptcy liability estimation process is not even close to scientific, as Mr. Bernick well knows. Indeed, the Grace bankruptcy included one of the strongest indictments issued to date regarding the lack science and due process in bankruptcy proceedings, That indictment is set out in the testimony of Professor Heckman,  a University of Chicago economist and Nobel prize winner, as described  in item 4 of this prior post.

Meanwhile, there is global cigarette litigation. In Nigeria, the tobacco companies are the subject of $ 45 billion government cost recovery claims, as described, for example, here and here. And, as noted on Saturday, there have even been tobacco claims in Japan, which are not noteworthy for any success but are note worthy for the statistics regarding the continuing smoking patterns in Asia.

Perhaps most significantly, the tobacco industry recently suffered a resounding loss as the Massachusetts Supreme Court endorsed in sweeping terms a medical monitoring class action case against tobacco companies. Due to Congressional hearings and the tobacco settlements, it's very plain that the cigarette manufacturing industry very closely follows science, and so its senior executives undoubtedly are aware of the indicators that their companies soon enough will face a wave of  expensive medical monitoring and therapy claims arising from new scientific discoveries. Soon enough, it will be routine to provide effective screening examinations to find cancers when they are still microscopic. Incredible new devices and techniques will be used to create innovative therapies that will be developed to "cure" or manage the tumors, all at some significant amount of expense. See generally the many papers of Professor Gary Marchant, most of which are collected on his law school's website at the page which is here. Those developments will make it practical for plaintiff's lawyers to bring claims on behalf of persons in developing countries for which the opportunity for expensive life-saving treatment will create enough economic value to incentivize litigating cases that will have significant emotional appeal to any judge or jury.


My bet? Mr. Bernick's will architect and oversee an effective defense across the broad range of pending cases, all while planning for future efforts to obtain absurdly favorable settlements that promote continuing tobacco use by sharing revenues with governments and lawyers, not to mention, litigation funders, to produce securitized cash flows. The settlement also produced ancillary litigation over access to information from state attorney's general on why and how they settled. Certainly Mr. Bernick is well suited by experience to lead PM through the issues ahead.

Mr. Bernick will have plenty of new challenges because more and more commentators are speaking out on the myriad problems with the handling of mass tort claims. Indeed, new commentators are emerging. Commentators include Prof. Erichson on "The Trouble With All or Nothing Settlements" and others who last year spoke on whether more mass tort claims need to be litigated instead of settled. Prof. Burch wrote a post this past Friday on Prof. Redish's new book arguing that many mass tort class action procedures are unconstitutional (an issue I've been litigating and arguing since the late 1980s.) She also links to a summary of contra papers by Prof. Issacharoff, who also is a paid partisan and advocate in asbestos litigation, including (among others) the THAN bankruptcy (click by the first screen and then you should land at the page for In re T H Agriculture & Nutrition, L.L.C., Case No. 08-14692 (REG). The THAN case is the asbestos bankruptcy that produced a declaration from an asbestos  plaintiff's lawyer regarding his understandings from chapter 11 plan negotiations regarding his firm's clients being paid an average of over 700k per claimant for future claims against the THAN trust.

Challenges also will arise due to commentary and new thoughts from overseas. Prof. Burch wrote this recent cogent post summarizing a new report from the UK on tort claiming. To tease you to go read more, here are two key excerpts from the post summary:

"Of additional import, the final report recommends that solicitors and barristers should be allowed to enter into contingency fee arrangements, which are currently prohibited. Before entering into such an arrangement, the report recommends that claimants receive independent advice. It also suggests capping the fees at 25%.



Finally, the report recommends making third-party funding available to personal injury claimants (including those involved in collective actions). It defines third party funding as "The funding of litigation by a party who has no pre-existing interest in the litigation, usually on the basis that (i) the funder will be paid out of the proceeds of any amounts recovered as a consequence of the litigation, often as a percentage of the recovery sum; and (ii) the funder is not entitled to payment should the claim fail." (Final Report at p. 17). Very interesting."

UK corporate and insurance company lawyers issued a January 19 report she links to; here's their bottom line:

"If Jackson LJ's recommendations are passed into law, it seems safe to predict that they will lead to an increase in the number of collective actions seeking damages for personal injury. In particular, group claims against the manufacturers of allegedly defective products, which are no longer routinely funded by legal aid as they were in the 1980s and 1990s, are likely to become more common. Claimants with an arguable claim of this type would generally be able to proceed under a contingency fee, CFA or third-party funding arrangement without the spectre of possibly having to pay, out of their own pockets, either their own lawyers' fees or the costs of their opponent.

Costs shifting would remain in place for most types of collective action, such as those involving claims for anti-competitive behaviour or consumers' claims for economic loss. In these cases, the loser-pays rule would remain a significant disincentive to claimants considering a group action and would protect defendants against frivolous or speculative lawsuits.

The big question now is whether these reforms will be implemented. Jackson LJ appears to hold the view that his recommendations, which he describes as "a coherent package of interlocking reforms", should not be viewed individually but as a comprehensive set of proposals. Some of these proposals could be introduced relatively easily by amendment to the Civil Procedure Rules, such as the introduction of a qualified one-way costs shifting regime, but for the most part primary legislation would be required in order to give effect to other recommendations, such as abolishing the recoverability of success fees from defendants. With the general election taking place this year, civil justice reform is unlikely to be high on the Government's agenda. The likely delay will provide a window of opportunity for those who have concerns about particular aspects of these recommendations to make them known before the reforms are finally implemented."


We surely are living in interesting times for mass tort claiming.
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Here is the article from the Chicago Tribune regarding Mr. Bernick; the text is pasted below.

Friday, January 22, 2010

Top litigator at Kirkland leaving for Philip Morris

David Bernick, a star litigator at Kirkland & Ellis, is leaving the firm to become general counsel at Phillip Morris International.

Bernick has been with Kirkland for 31 years and has been involved in nearly every type of complex litigation imaginable, from defending companies with asbestos liability to representing breast-implant manufacturers.

"I have spent my entire career at Kirkland & Ellis and I am proud to have contributed to the growth and success of one of the top law firms," said Bernick in a statement provided by the firm. "I will remain close to my many friends and colleagues at the firm, but I look forward to pursuing new challenges during the next phase of my career with Philip Morris International."

Kirkland's incoming chairman, Jeffrey Hammes, said: "David has been an integral part of our premier litigation practice, and his achievements during his 31 years at Kirkland are truly remarkable. We thank him for his varied and long-standing service to the Firm and we wish him success in his new role.

Bernick will join Philip Morris on March 1. As part of the move, he will relocate to Switzerland from New York.

Tip of the hat to Above the Law for breaking the news.

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Now it's west (from Chicago) to Australia, asbestos and the public company fiber cement business commonly known as James Hardie.

 The short story is that James Hardie and its officers and directors have been through a wringer as several were convicted of securities violations in connection with information disseminated regarding "asbestos liabilities" and a foundation set up by various former Hardie entities to manage and pay asbestos claims.   The convictions are on appeal. For more specifics on the past, look to the left for prior posts indexed under the topic "James Hardie." 

Rapid Global Movement Makes Local Policy Hard to Enforce:   Hardies actions are noteworthy for multiple reasons other than the securities convictions. For one, note that Hardie's recent global corporate "citizenship"  translocations from Australia to The Netherlands and now Ireland, all in just 9 years. The point? Money and ownership will move to wherever financial engineering offers a material opportunity to avoid taxes, achieve tax benefits, or avoid or limit liabilities. This point needs to be understood by policy makers, tort claimants, tort case co-defendants and insurers because of its implications for tort claiming and risk spreading.  Simply put, parochial local  approaches to tort law may be politically attractive at times (e.g. take action to save local jobs) but one should expect the tort system will be gamed just as some financiers play games with states in the US for financial incentives to relocate -  for a few years -  the corporate headquarters or a manufacturing facility. The wills of state legislatures, the long term abstractions of tort law professors, and the opinions of slow moving appellate courts are all much less relevant when, as now, ownership, the corporate "home" and money, can all be moved in a matter of  months.  (One wonders when an enterprising tropical island will enact legislation favorable to companies facing long tail tort claims. One might look to the precedent set in the  UK with FSA legislation that helped the "the names" and the Lloyds insurance market run away from their insurance obligations. Or, one might also consider states that set up rules considered unduly favorable to one side or another - some might say that West Virginia, Texas, New York, South Dakota, and Delaware all provide classic examples of this approach  ... )

Private Tort Claim Foundation as an Alternative to Chapter 11 ?  By any reasonable standard, current and former Hardie entities  Hardie entities face claims for  at least a billion or two of claims, and maybe much more, depending on how one defines claims (do overseas claims count; what about property damages claims). In the US, the now-defined answer would be to file one or two subsidiaries file a Chapter 11 case in Delaware or New York. Then, via the parent company chipping in some money and/or rights related to some "shared insurance," the parent and all subsidiaries likely would end up with an injunction  purporting to protect them against a future claim anywhere in the world. Thanks to the rampant lack of due process and the resulting lack of objectors in chapter 11 cases (highlighted most recently by GM and Chrysler), most such plans succeed, at least in the sense that confirmation is obtained.

Hardie, however, did not pursue that path and instead set up a private foundation to manage and pay claims, backed by some conditional promises of future cash flow from Hardie entities. The foundation has now been in place for almost a decade. Future posts will explore some specific aspects of the Hardie foundation. For now, for 213 pages of Hardie facts and history as narrated by KPMG as advisors, go here and read/skim through a 2006 liability estimate.

While reading, note, among other things, that Hardie entities have been selling asbestos products since the early 1900s, owned a chryotile asbestos mine in Australia, sold products internationally, participated in various international joint ventures, and sold a wide range of asbestos-containing products. Sales included a asbestos-cement building materials, pipe insulation, and friction products, as well as sales of raw chrysotile asbestos fiber. Note also that some of Hardie's cement and insulation products included one or both of  two types of the highly lethal amphibole fibers, which are crocidolite (apparently mined in Australia at Wittenoom) and amosite from Cape or others in South Africa (amosite being a sort of a contraction for "asbestos from the mines of  South Africa").

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Here is an article from Japan this week that reports on finding Libby Mines vermiculite in buildings in Japan. The article claims the material was installed Zonolite. How can Judge Fitzgerald's orders in the WR Grace case bind these building owners if they were not given effective notice in a language they understand ?

Note also that the article indicates SEM (scanning electron microscopy) is now being used overseas to find fiber types.

_________________________________________________________________

Highly toxic asbestos found in four buildings across Japan; current testing flawed

A widely-used building material has been found to contain asbestos in Tokyo, Hokkaido and Kagawa, in the first discovery of amphibole asbestos, the rarer and more dangerous variety of the toxic mineral, in buildings in Japan.

Asbestos fibers were found in at least four buildings: three community centers, one in Hokkaido and two in Kagawa Prefecture, and the ceiling of a private building in Tokyo. The latter three all used a vermiculite-based insulation called Zonolite. Measures to prevent the asbestos from scattering have already been taken at all the four buildings.

The findings were made by the Tokyo Occupational Safety and Health Center (TOSHC). Examining vermiculite containing relatively low-toxic serpentine asbestos using scanning electron microscopes, they found amphibole asbestos at concentrations of 0.1 to 1.5 percent -- enough to designate it an asbestos-containing material.

The center also found that trace impurities of aluminum and sodium matched those of a vermiculite sample taken from a mine in Libby, Montana. A study there found that 18 percent of residents of Libby tested after complaining about various health problems were suffering from chest-lining abnormalities.

A standard method of testing for asbestos used in construction materials was introduced in June last year, which local governments and other organizations have used to conduct their own studies. However, center expert Naoki Toyama points out, "We detected (asbestos) using the ISO method. Under the standard method, however, asbestos could be overlooked."

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As a result of bugging the clerk's office and the court reporter's office, the transparency-blocking 90 day veil has now been lifted from some of the General Motors bankruptcy hearing transcripts.

Here is the June 25, 2009 transcript that reflects the asbestos plaintiff's lawyers withdrawing the request for appointment of a futures representative. The withdrawal was based on the grounds that there would not be a section 524(g) injunction order entered in the case and that orders entered in the case do not bind future claimants.

So, the asbestos personal injury litigation saga no doubt will go on as to GM at least for future claims. And, just as the bankruptcy court orders do not bind future personal injury claimants, the orders also should not bind underlying case co-defendants which decide to bring in those cases a contribution or apportionment claim against the new GM entity, if it survives.

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I'm headed to London this weekend to chair an asbestos litigation conference starting On Tuesday the 29th, so this seems a good time for an update on new speakers added to the conference roster and on some UK developments regarding asbestos litigation.

Conference Update: Two additional conference speakers have been added. One speaker will address new research regarding the impact of the chapter 11 asbestos trusts in the United States. Some of the research data was released in the US earlier this month and quite explicitly proves that indeed the chapter 11 bankruptcies have a significant impact on the litigation fortunes of the defendants that remain in the tort system. The research was undertaken by Bates White and will be presented by Peter Kelso. Additional upcoming research on asbestos bankruptcies also will be discussed.

Another speaker was added to address the evolving topic of litigation as a target of investors. Litigation investment will be addressed in two ways. First, Selvyn Seidel of Burford Advisors will explain the nature of the business and how and why it is expanding. Second, additional speaker Andrew Evans will describe the emerging market in which defendant companies may pay other companies to take over some or all litigation risks in, for example, asbestos litigation. Mr. Evans is part of a business known as Litigation Resources Group that has its roots in Bates White work on the economic realities of asbestos litigation.



Conference registration is still open at the online site here. The conference runs all day on Tuesday the 29th and a half-day on Wednesday the 30th. I'm speaking on the 30th as part of a panel on asbestos trusts.



Pleural Plaques: Trade unions in the UK this week started ratcheting back up their efforts to persuade the UK government to enact legislation that would reinstate damages claims for pleural plaques. This September 24 article from the UK asserts that the unions expect "betrayal":

"Unions will again call on the Government to restore compensation for pleural plaques sufferers at the Labour Party Conference next week.

Gordon Brown was presented with a campaign video produced for the Trade Union and Labour Party Liaison Organisation by Jim Kennedy, political officer of construction union UCATT, this week.

Unions are demanding a new law to overturn the Law Lords' 2007 decision that sufferers of the asbestos-related disease do not need compensation.

Mr Brown promised the TUC Congress that ministers would examine the question when Parliament returns. But UCATT warned earlier this year that they were expecting "betrayal" on the issue"

Asbestos in Schools Hysteria in the UK: Hard to believe the way asbestos-in-schools history is now repeating itself in the UK via essentially hysterical UK news articles that fail to take any lessons from like prior hysteria in the US. Thus, this article from the UK's Mirror newspaper rather hysterically reports that 50,000 law suits are expected against uninsured UK school councils for allegedly causing asbestos-related disease. The article states:


"Test case may lead to 1000s of asbestos compensation claims


By Mark Ellis 23/09/2009
A test case may open the floodgates to thousands of compensation claims for asbestos-related cancers, a court heard yesterday.
And it could create a massive financial burden on education budgets for generations to come.
The warning comes amid fears that many comprehensive schools built in the 60s are riddled with the potentially lethal material.
It also adds weight to the Mirror's Asbestos Timebomb campaign. Lord Justice Moses at London's civil appeal court heard that 50,000 cases against largely uninsured councils are expected over the next 40 years.

And he set the stage for a landmark ruling by allowing council chiefs at Knowsley, Merseyside, to appeal a £240,000 award.
The case involves Dianne Willmore, 49, who blames her time as a pupil for her incurable lung cancer.
Asbestos timebomb: For more information on the Daily Mirror's campaign visit our blog."


UK reporters actually interested in facts and reality would do well to take lessons from the US experience. Asbestos-in-buildings hysteria swept the United States in the 1980s as EPA and plaintiff's lawyers predicted waves of deaths of janitors and school teachers, and thousands of lawsuits arising from injuries to be attributed to the presence of asbestos in school buildings. Ultimately, the hysteria ended because defendants W. R. Grace, U.S. Gypsum and National Gypsum gathered and analyzed literally tens of thousands of air samples in school buildings. The samples were analyzed and evaluated by world-class experts, including Rich Lee and Morton Corn (Dr. Corn earlier was a highly senior OSHA official and oversaw a dramatic but thoughtful reduction in the PELs for asbestos) . Their peer reviewed articles and testimony ultimately stemmed the tide of hysteria because they proved that in most but not all instances, the indoor air in schools contained no more asbestos fibers than did outdoor air. They also proved that even if fibers are being released in a certain spot in the building, the fiber levels a few feet away are still normal. Morton Corn proved this by, among other things, using air sampling to monitor fiber levels at various points in a room in which he was using a baseball bat to strike an asbestos-containing ceiling material.

Meanwhile, asbestos-in-buildings lawsuits at first flourished in the mid to late 1980s and early 1990s but then faded away hen the plaintiff's bar realized that the cases were very hard to win and expensive to litigate. Indeed, my then-partner Pat Lamb and I went to trial for W.R. Grace back in 1995 on asbestos-in-buildings claims brought by the Chicago Board of Education and numerous suburban school districts. After several days of trial, the claims settled for a very modest fraction of the demand.



Today, asbestos-in-buildings claims do not exist in the US except in the non real world of chapter 11 cases where science and state law are routinely ignored. Why? Because Congress' section 524(g) gives economic power to claims that lack merit by giving claimants votes the debtors need to exit chapter 11, thus leading debtors to pay money to settle claims that plaintiff's do not in fact bring or win in state courts. This pattern once again highlights that chapter 11 decision-making for tort claims is seldom grounded in reality.

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This article from Bloomberg describes the start of the confirmation trial in the Pfizer/Quigley asbestos bankruptcy and reviews the case in general. The trial is to run off and on for 7 or more trial days, concluding Oct. 16.

Despite various efforts to paint the situation in other lights, Quigley essentially is a corporate shell doing nothing but running off tort claims, so the relevance/applicability of chapter 11 is not apparent. Indeed, according to Bloomberg, " Edward Weisfelner, a lawyer for asbestos victims, challenged precedents set by asbestos cases in the 1980s. said of this case, "We are allowing the Chapter 11 process to be rented out, for the benefit of the true economic party of interest," Weisfelner told Bernstein, calling the case a "sham," by Pfizer that abuses the bankruptcy code. He said the bankruptcy, which has cost $75 million over five years, was filed solely to protect Pfizer. The US Trustee's office also has raised issues on this topic, which is notable because that office has not done much in most of the asbestos-driven chapter 11 cases. In short, one key issue is the extent to which a parent company can pay money and obtain in exchange a bankruptcy court injunction to protect itself against future asbestos claims arising from its relationship to the subsidiary and/or its actions related to the subsidiary. Some procedural issues cloud what the bankruptcy court will and will not do in terms of ruling on those issues.

Also interesting will be the process of estimating the value of future claims. As I've described before here (see item 4) the chapter 11 "estimation" process used in mass tort cases was the subject of scathing criticism in the W. R. Grace asbestos bankruptcy case. The criticism took the form of a declaration by a Nobel prize winning economist, Dr. James Heckman. As he explains it, the estimation process is not even close to scientific and instead is far more about trying to predict the future claiming practices of plaintiff's lawyers based on what the lawyers did in the past. That of course brings to mind the usual investment fund disclosure that past performance is not a predictor of the future, a statement that surely is equally true for the claiming practices of plaintiff's lawyers. According to Professor Heckman, courts should not allow themselves to be used to make a ruling based on estimates built in part around the massive asbestos claiming frauds that Professor Brickman and others have described at length.

The Quigley/Pfizer case also somewhat addresses the reality that in some limited ways, some asbestos plaintiff's lawyers representing some cancer claimants are in some ways contesting the usual approach to asbestos chapter 11 cases because it gives far too much power to the lawyers representing the least sick claimants (if they are sick at all, in the every day sense of the word). This case is thus another part of the occasionally public intramural disputes between different asbestos plaintiff's lawyers, with the two basic camps composed of 1) firms that represent thousands of minimally sick claimants and 2) firms that represent relative handfuls of cancer claimants.

Another public example of those disputes occurred back when some plaintiff's lawyers went to Congress during the days of the so-called FAIR Act and testified about the deep flaws in the thousands of claims being mass-filed on behalf of persons who were at most minimally sick.

Another public indicator of the battle may be found in the chapter 11 trusts which include terms that impose "collars" (limits) on the amount of money that may be paid out in a given year to the least sick claimants.

The intramural battle between camps of plaintiff's lawyer goes on because Congress irrationally handed huge economic power to lawyers for the minimally sick when it enacted section 524(g) of the bankruptcy code. Economic power was created by including a term that requires a vote in favor of the chapter 11 plan by 75% of ALL asbestos claimants. That rule has been under some attack in this case as the lawyers for cancer claimants seek to reduce the value of the votes of the least sick claimants.

The same economic dispute between the cancer claimants and the minimally sick also applies to future personal injury claimants. However, the inherent and obvious conflict between these two subsets of future claimants is typically ignored in chapter 11 cases. How is the conflict ignored? By assigning one person the impossible task of trying to properly represent all future personal injury claimants.

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This summer brought the Chrysler and GM chapter 11 cases in which bankruptcy courts issued wide-ranging injunctions that seek to block some or all tort claimants from pursuing some or all current and/or future tort claims against the insolvent entities and their successors and/or buyers. Now, as we move into fall, here's the latest example of the expanding use of chapter 11 injunctions and trust funds as the proposed means to resolve underlying alleged "mass tort" claims. These ongoing expansions make it even more important to scrutinize the rules to the process by which Wall Street is now able to use chapter 11 to eliminate or transfer financial responsibility for underlying mass tort claims. These ongoing expansions also make plain that there is a pressing need to pull down the veil of secrecy that blocks meaningful scrutiny of the operations of most, if not all, chapter 11 trust funds that resolve tort claims.

This latest example arises from this new motion filed in the Tousa home builder bankruptcy. The effort in Tousa parallels the approach taken in the WCI home builder chapter 11 case. The new motion in Tousa seek to continue the automatic stay to block tort and contract claims regarding buildings built with allegedly defective Chinese drywall. The motion seeks to continue to block the underlying lawsuits based on the prospect of creating a chapter 11 trust to resolve the same underlying lawsuits. Presumably the trust also would be used to resolve the claims that would arise if the court were to allow a proposed class action against Tousa by would-be drywall claimants . The proposed class action is the subject of other bankruptcy court motions.

The motion in Tousa is noteworthy for multiple reasons. For one, it asserts that the debtor will welcome the involvement of its insurers in creating the proposed trust. In contrast, in the asbestos chapter 11 cases, the debtors virtually always assert that trust are "insurance neutral," meaning that whatever happens in the bankruptcy court does not effect the rights of insurers. Based on that claimed neutrality, the debtors and plaintiff's lawyers almost always argue that the tort claim insurers lack "standing" to be involved in the bankruptcy court proceedings.

Insurers sometimes but not always disagree, depending on what view suits a particular insurer's interest in a particular chapter 11 case and its overall financial status. Usually, but not always, insurers that issued primary policies re heavily exposed to the tort claims, and so will seek to cut a deal with the debtor and the plaintiff's bar in order to achieve certainty. Other insurers that issued higher level excess policies tend to fight the debtor on the standing issue until they've created enough of a record that the debtor agrees to accept from the high-level insurer a nominal payment over time in return for a release of all obligations under the higher-level excess insurance policy.

The motion also is noteworthy for what it does not mention. For one, it makes no mention of the current or future rights of other, solvent companies that are now or will in the future end up as co-defendants in the underlying lawsuits. Co-defendant entities can be incredibly harmed by the terms of the bankruptcy trust if the terms cut off or in any way limits the right of co-defendants to bring cross-claims or equitable contribution claims against the debtor or the trust. In the chapter 11 asbestos cases, the trust terms almost always have imposed severe and unconstitutional limits on the rights of the co-defendants to bring cross-claims against the debtor or the trust. To be fair to co-defendants, bankruptcy courts can and should appoint at least one person to represent the interests of fat least future co-defendants.

Additional adverse impacts arise for co-defendants if secrecy is allowed regarding claims submitted to the trust fund and its payouts to particular claimants. Once again, the chapter 11 trust model should not be followed because in most such cases, the plan tosses a veil of secrecy over information regarding which claimants have made claims and what they have been paid. Co-defendants rightly argue that the veil of secrecy is poor public policy because court-ordered trusts should instead be transparent as a matter of public policy. Beyond pure policy issues, the veil of secrecy also is improper because it blocks the co-defendants from asserting state law rights. Secrecy also blocks legislators from understanding what really is or is not being done to compensate legitimate and illegitimate claimants.

The motion also is significant because it does not mention various other sources of conflicts between constituencies with interests in the terms of a trust created to resolve tort system claims. One source of conflicts is that persons with strong and serious claims do not want to see trust fund money frittered away on payments to spurious or marginal claimants. Once again the asbestos chapter 11 cases highlight the problem because most of the trusts have been put in place with terms that have allowed billions of dollars to be paid to claimants who are not "sick" in any meaningful way.

Here are key excerpts from the Tousa motion:

4. Among other things, the Debtors are aware of the recent plan of reorganization confirmed in the chapter 11 cases of WCI Communities, Inc. and certain of its affiliates (collectively, "WCI") in which WCI successfully managed its liability with respect to Chinese Drywall by implementing a global strategy that will address Chinese Drywall claims through the use of a trust, a channeling injunction and claims liquidation procedures. Additionally, the plan of reorganization permitted WCI to efficiently address its' claims against its insurance carriers as well as the installers and manufacturers of Chinese Drywall. While the Debtors continue to analyze their own Chinese Drywall cases and their prospects for a chapter 11 plan, the WCI approach offers one possible alternative to piecemeal litigation of Chinese Drywall claims.

5. The Debtors intend to work with their major creditor constituencies in an effort to establish a global strategy with respect to claims arising from or relating to Chinese Drywall. This global strategy will prevent a "race" to insurance proceeds by similarly situated claimants that will have the negative effect of depleting the amount of insurance available to satisfy other claims or, otherwise, impact the Debtors' ability, as a practical matter, to craft a more comprehensive resolution of the Chinese Drywall-related claims. To that end, the Debtors intend to involve the alleged holders of Chinese Drywall-related claims and the Debtors' insurance carriers in any such discussions. Based on the Debtors' desire to develop a global resolution of the Movants and similar claims, the Debtors have filed this objection.


Hat tip to LAW360 for noting the motion to continue the automatic stay.

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Now online here at no expense is a new paper by the economists at Bates White. The paper is titled "The Naming Game" and is well-worth reading because it uses data from Alameda County to prove the reality that when defendants have exited the tort system to chapter 11, plaintiffs lawyers have in fact sought out and sued new defendants with increasing frequency. The paper also raises other interesting questions for discussion another day regarding the practices of plaintiff's lawyers in collecting money from asbestos trusts AFTER they have finished collecting money in the tort system.


The online article is a reprint from the September 2 issue of the Mealey's report for Asbestos Litigation.

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An update seems appropriate in light of the "new" cert petition filed in early September, and comments this week from the asbestos plaintiff's bar (Joseph Rice of Motley Rice and Robert Phillips of SimmonsCooper) during a seminar panel discussion on the status of various chapter 11 cases. The bottom lines seem to be as follows as to Chrysler and GM.

1) As I've described before, the Second Circuit's August 5 opinion in Chrysler explicitly articulated caveats as to which if any tort claimants will be bound by the rulings to date. That was obviously a victory for the asbestos plaintiff's bar and they ultimately decided it was a strong enough win to make the choice not to pursue further appeals in GM or Chrysler. Instead, they will in the future fight the issues of which if any would-be future plaintiffs are bound and as to what issues.

2) The Indiana Pension Fund plaintiffs are now trying to obtain certiorari on the fundamental issue of whether section 363 asset sales can be used to sidestep the normal confirmation process. Go here for a Scotusblog summary and a link to the cert petition. As Todd Brown has described before in pointoflaw.com, and as is described in other posts collected here, the rights of future plaintiffs can be or have been sacrificed in the context of section 363 sales since that process allows the debtor to avoid many of the "rigors" (such as they may be) of the confirmation process. And, as I've pointed out, that group of future plaintiffs includes asbestos co-defendants and subrogated insurers. So, if granted, the certiorari petition would raise issues of importance to future chapter 11 cases that include mass tort claims.

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Looks like another asbestos bankruptcy is ahead. This bankruptcy apparently will involve an asbestos mine in Zimbabwe, according to this article from The Zimbabwe Times. According to the article, the mine is not paying its 2,000 workers their meager weekly wages, and some say that the mine is crucial to Zimbawe's mining sector that supports much of the national economy and many jobs.

How easy it would be to solve the mining company's problem if only chapter 11 could be invoked. If that were so, then judging by rulings in cases such as GM, Chrysler and Lyondell, the near-bankrupt mining company could use chapter 11 to create an answer for its problems. To do that, it could find a buyer willing to purchase and operate the mine through a section 363 asset sale. The asset deal could include a term conditioning the deal on a Zimbabwe bankruptcy judge issuing a global injunction specifying that that the miners are enjoined from making an claims for past wages or from making any future claims for any disease that may arise from their work.

The Zimbabwean bankruptcy court also could use its awesome powers under Zimbabwe bankruptcy code section 105 to enter an injunction stating that if the workers at the mine ever become sick and sue for damages for asbestos-related disease, then the defendant entities in those tort suits are barred from suing the mining company for contribution. (Such co-defendants, might be, for example, a later employer and companies that sold equipment used at a manufacturing plant, say for example the seller of a large pump with one asbestos gasket that was serviced twice a year by some other person). Citing the mining company's desperate straits, its key role in the economy, and the lack of other willing buyers, the judge could quickly order a hearing to be held in a remote location far away from the mine on little or no notice to interested parties such as the miners and foreseeable future co-defendants, discovery could be truncated to the point of really not existing, and the hearing could be held in marathon sessions unavailable to most persons. Then the public hearing transcripts could be sequestered for 90 days afterwards.

Can you imagine the claims of "kangaroo court justice" that would follow from US lawyers if Zimbawe's legal system actually followed such a procedure and entered such orders?

__________________________________________________

Here are key quotes from the article:

"ZVISHAVANE - The government and management at the country's major asbestos producer, Shabanie Mines, have failed to stop a week-long strike by the estimated 2 000 mine workers there.

Industry experts warn the prolonged job boycott by the asbestos miners could compound the company's financial problems and cost the country millions of dollars in lost export earnings.

The workers downed tools last Monday to press the State-owned Shabanie Mashaba Mines (SMM) to pay them salaries due to them since the beginning of the year.

The Zimbabwe Times was informed that the now largely bankrupt company has failed to pay workers since January and has randomly selected a few workers each month to pay appallingly low monthly stipends of as low as US$30. It has since emerged some of the workers are now demanding that the State-run multimillion-dollar asbestos producer be returned back to self-exiled businessman Mutumwa Mawere, the former owner.

Since January, the company has made only three pay outs and only to a quarter of the 2 000-strong workforce.

The stand-off was referred to an arbitrator in Masvingo in August, but he has failed to resolve the drawn-out labour dispute.


***

Since the takeover by government four years ago, the company has faced critical cash flow problems amid allegations of looting by top Zanu-PF officials. The mining firm is reportedly facing critical viability problems because of a hostile operating environment, and has for the past eight months failed to reach a compromise with the workers.

Several of Zimbabwe's mining firms face collapse also because of lack of hard cash to buy new machinery and spares.

The perceived high political risk because of Zimbabwe's lawlessness and political violence has also scared away foreign investors with investment funds to shore up the depressed mining sector."

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Just in time for upcoming asbestos litigation seminars. the economists at Bates White have issued a new report on asbestos litigation, asbestos trusts and the practices of plaintiff's lawyers in choosing and naming defendants to target in lawsuits. The article is well-worth reading as it uses data from Alameda County to prove the reality that as defendants have exited the tort system, plaintiffs lawyers seek out new defendants, among other things.

The article is in the new September 2 issue of the Mealey's report for Asbestos Litigation, or presumably is available through Lexis/Nexis in general.

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Todd Brown is a former defense-side lawyer (Wilmer Hale and Jones Day) now teaching law in Buffalo after a stint at Temple. Mr. Brown has written pretty extensively and astutely on deep flaws in asbestos bankruptcies (see my post here regarding his prior law review on section 524(g)). Mr. Brown has been guest blogging and commented here on Pointoflaw on two aspects of the 2d Circuit's Chrysler opinion. As it pertains to tort claimants, Mr Brown said the following:

" Second, the panel addressed the various arguments that the Chrysler assets could not be sold free and clear of successor liability for various personal injury type claims. Here, the panel adopted a fairly broad reading of the "interests" that can be cleansed in a Section 363 sale, reasoning that this interpretation is more consistent with the purpose of this section and the priority scheme of the Bankruptcy Code.

The panel refused to weigh in on the question of whether a Section 363 sale can cleanse future claims (such as those that might arise from asbestos exposure). This not only makes sense in the abstract; it is the right approach for future claimants. As we have seen in the 524(g) context (which requires setting aside funds to pay current and future asbestos claims, among other things), future claimants' interests are often sacrificed by those currently asserting asbestos claims against bankruptcy estates. Now that courts have started taking a harder line against these schemes, it is easy to see how the 363 sale approach might be viewed as a possible end-run around 524(g)'s limitations on front-loading recoveries. Until the "free and clear" sale's applicability to future claimants is clarified, however, such an end-run remains, at best, extremely risky for most asbestos defendants." (emphasis added).

Todd certainly is correct that the the interests of future claimants have repeatedly been been sacrificed in the asbestos chapter 11 cases. To go further, recognize that future claimants are NOT just the personal injury claimants, and instead there are multiple types of future claimants against the debtor's estate. Future claimants may be, for example, state agencies that want to recoup expenses from a debtor that caused personal injuries or created an environmental mess. Future claimants also include underlying case co-defendants which want to pursue cross-claims against former co-defendants now hiding behind chapter 11 injunctions The same applies to those insurers with subrogation and indemnity rights. against debtors.

Bankruptcy judges and plan proponents may in the future rue the day they did not 1) give due process notice to these groups of future claimants, and 2) did not cause appointment of a futures representative who actually intended to and actually did represent the interests of these other groups of "future claimants."

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Today's post follows up on this August 13 post regarding asbestos plaintiff's lawyers asking the Court to order the rest of the world not give any effect to whatever the Court finds on Grace's solvency, and item 4 of this prior post of May 12 regarding Nobel prize winner James Heckman's expert report in Grace in which he and the non-asbestos creditors indicted bankruptcy court estimation proceedings as having no scientific validity.

The topic today is Grace's August 7 trial brief asserting that it is impossible for the Court to determine whether Grace is solvent or insolvent, and that instead it should just find that Grace will be solvent and viable if the plan is confirmed. Grace's brief [Docket 22732] is available through PACER or here.

Key quotes from the Grace brief are below. The gist is that estimates of its "personal injury liability" range from a low end of $ 200 million (from Grace's expert, Tom Florence) to $ 6.2 billion (plaintiff's expert Mark Peterson). In addition, its "property damage liability" is estimated by some at about $ 3-5 billion, with one calculation suggesting $ 82 billion. The facts, as argued by Grace, are set out below. The question I pose is this:

In tort cases, we say that good science must be applied. In business litigation, the general rules is that damages must be proved with reasonable certainty. Given those rules, why would it be socially useful and/or constitutional for bankruptcy courts to issue world-wide injunctive orders without making actual factual findings on key issues when the factual claims are so extremely different as they are in the Grace case, and the answer on solvency plainly could come out on either side of the solvency question?

In posing that question, I recognize that Grace and others will and do say that what we need most are deals that end litigation and that courts should accept deals. But, isn't it also fair to say that individual case settlements are much different because, unlike Grace's desired confirmation order, those other settlements do not include sweeping injunctions purporting to bar and limit the manner of future prosecution of tens or hundreds of thousands of present or future claims to be asserted by personal injury claimants, and that also will enjoin cross-claims or subrogation claims to be asserted by underlying case co-defendants and/or insurers in those same hundreds or thousands of future personal injury claims?

The Grace brief states the following, at 12-14:

"Among the most significant hurdles that the Committee and the Lenders must overcome
before they even get to the analysis under section 1129 is the requirement that they prove the Debtors are solvent. This they cannot do. The most significant component of Debtors' liabilities, the Asbestos PI Claims, has never been agreed upon or adjudicated. The estimation proceeding, which was designed specifically to estimate the value of the Asbestos PI Claims,was not completed. And there has never been an agreed upon or adjudicated resolution of Debtors' potential property damage asbestos claims. Without such adjudication, the liabilities cannot be established, and the Lenders and Committee cannot prove that the Debtors are solvent.

The incomplete estimation proceeding only highlights the fact that, absent the Plan, there is an enormously wide range of estimated values of the Debtors' asbestos liabilities. For example, the Debtors' estimation expert, Dr. Tom Florence, estimated that value of Debtors'asbestos personal injury claims ranged between $200 million and $989 million with a median value of $468 million. But Dr. Denise Martin, another one of Debtors' experts, determined that at the standard 95% confidence interval for scientific reliability, Dr. Florence's estimates could range from $4.6 million to $6.3 billion. The PI Committee's expert, Dr. Mark Peterson, could
offer no more definite estimates of Debtors' asbestos liabilities. He opined that Debtors' potential liabilities for asbestos personal injury claims were "between $4.7 and $6.2 billion and most likely between $5.4 and $6.2 billion." See Expert Report of Dr. Mark Peterson in Connection with the Asbestos Personal Injury Estimation Hearing, dated June 20, 2007 at ES-5 (Dkt. 16113, Ex. A).

Likewise, the value of the Zonolite Attic Insulation ("ZAI") claims is also highly
uncertain and disputed. While the Plan provides between $54.5 million and $58 million to ZAI (and potential additional contract payments), ZAI made substantially higher demands. For example, ZAI claimants have previously stated that ZAI could potentially be in 11 million homes5 with a value of$5,000 to $7,500 per home,6 for a total of up to $82.5 billion. Even using the claimants' lower estimates of 1 million homes7 at a value of $3,000 to $5,000 per home, the total liability would be $3 billion to $5 billion. The range of non-ZAI Propert Damage liability is also entirely uncertain. While the Plan provides $ 49.3 million for non-ZAI Property
Damage claims, the potential claim was much greater. Together, the total potential Property Damage liability, absent a Plan, reaches at least $3.149 billion to $5.149 billion and may be much greater.


B. The liability disputes foreclose any demonstration of solvency. The Plan
disposes of that liability and therefore cannot be relied on to prove solvency.

As described above, there has never been an adjudication of Debtors' asbestos liabilities, and estimates of those liabilities vary greatly. There is simply no estimation method that can accurately measure the Debtors' asbestos liabilities. Without a binding determination of Debtors' potential asbestos liabilities, there cannot be a final and binding determination that Debtors are solvent. Zily Aff. ~ 4.9

As discussed infra, the Lenders' new expert, Robert 1. Frezza, relies on estimates from the never-completed estimation hearing to attempt to "determine" Debtors' solvency. This attempt is unavailing. Indeed, the only way that Mr. Frezza can even begin to argue Debtors' solvency is by relying upon the Plan, the very one to which the Committee and the Lenders now object. Absent the Plan, there is no cap on Debtors' asbestos liabilities. As already noted, the Proposed Asbestos Settlement, which forms the basis of the Plan, does not represent an adjudication of the Debtors' asbestos liabilities. Rather, it represents a compromise that disposes
of the need to adjudicate those liabilities. Without the Plan, all that is left are potentially enormous amounts of asbestos liabilities, the adjudication of which would determine whether Debtors are solvent. In other words, the Plan does not prove solvency; it paves the way for solvency from and after the Effective Date."

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The W. R. Grace chapter 11 case has produced a striking motion that highlights the too often bizarre and unconstitutional nature of much that happens in mass tort chapter 11 cases. In their motion, available here [Docket # 22543], the Asbestos Creditors Committee and the Futures Representative ask the bankruptcy court, Judge Judith Fitzgerald, to issue an order that any post-trial findings she makes on the solvency of Grace are to have no effect outside of her courtroom. The motion goes on to say that Grace does not object to the motion or proposed order.

As proof that I am not making up this motion "to pay no attention to the findings," set out below are key quotes from the motion and the proposed order. The full text quotes are followed by analysis of why the motion is rather absurd, why it was filed, and why it is unfair to co-defendants who remain stuck in asbestos cases in which Grace was, is or should be a co-defendant. The short answer, in my opinion, is that the motion to pay no attention to the findings is a transparent ploy to game the state courts by having them treat Grace as if it is insolvent even though it is in fact solvent. Why? Because Grace being viewed as insolvent by state court judges will in some cases block state court proceedings from properly allocating fault and/or monetary losses to Grace, thus defeating state laws on allocating fault and loss among multiple tort defendants.

1) Key Quotes from the Motion to Pay No Attention

The following are the key portions of the motion to "pay no attention to the findings:"

"In support [of this motion], the ACC and the FCR state as follows:

1. As the Court is aware, the Bank Lenders, various unsecured creditors, and the Official Committee of Unsecured Creditors (collectively, the "Unsecured Creditors") object that the Debtors are solvent and, therefore, the Unsecured Creditors are entitled to receive post-petition interest. The Unsecured Creditors have indicated that they intend to litigate this issue at the upcoming confirmation hearing.


2. Whether the Unsecured Creditors are entitled to post-petition interest, and
if so, at what rate is, at bottom, a contractual dispute between the Debtors, on the one hand, and the Bank Lenders and other Unsecured Creditors, on the other hand. Neither the ACC nor the FCR are parties to the relevant contracts, and are not participants in that dispute. Accordingly, the ACC and the FCR are not required, and do not intend, to present evidence on these issues."

Here is the request for relief:

"WHEREFORE, the ACC and the FCR respectfully request entry of an order, in the form of the proposed order attached hereto, providing that any findings or conclusions by the Court with respect to solvency shall only be used for the purpose of determining whether the Unsecured Creditors are entitled to postpetition interest and shall not be used by any party for any other purpose, and granting such other and further relief as the Court may deem just."

Set out below is the key portion of the proposed order - note that it is NOT limited to the bankruptcy court case and instead refers to any proceedings anywhere, such as a state court asbestos law suit where Grace being solvent might make it possible for other defendants to allocate fault or liability to Grace:

IT IS HEREBY ORDERED that:

Any findings made or conclusions reached by the Court with respect to the Debtors' solvency shall be used only for the purpose of assisting the Court to resolve the question of whether Unsecured Creditors, as defined in the Motion, are entitled to postpetition interest and shall not be used by any party in any proceeding for any other purpose. (emphasis added)

IT IS SO ORDERED.


2) Analysis of the Motion to Pay No Attention to the Findings


The ACC's motion is striking for multiple reasons. To begin with, consider its premise. According to the ACC and Futures Rep, they are parties to the case with notice and a meaningful opportunity to be heard, but they say they can just sit back and not present evidence and not be bound by whatever happens. That certainly seems rather absurd when the entire chapter 11 case was driven by present and future asbestos claiming. Indeed, the ACC spent several years contending that Grace is insolvent due to an alleged $ 6 billion or more of "asbestos liabilities." But, the ACC and the Futures Representative caved in and settled the present and future asbestos claims against Grace for far less than $ 6 billion after Grace went to enormous effort and expense to prove the bogus nature of many or most asbestos claims against it. The settlement in fact is said by Grace to have a present value of less than $2.5 billion and even the plaintiff's lawyers are said in this AmLaw article to have conceded the present value is less than $ 3 billion. And, when one looks at the settlement, only $ 250 million of present cash is being paid out by Grace itself before 2019- the deal,as described before here, is:

"The trust that will pay out asbestos claims will be funded by a $250 million cash contribution from Grace (payable on the company's emergence from Chapter 11); an additional $1.55 billion from Grace paid over 15 years, beginning in 2019; Grace's asbestos insurance coverage, worth an estimated $600 million; warrants to purchase Grace shares; and more than $1.2 billion in previous settlements with companies accused of fraudulently purchasing Grace assets."

It's rather hard to imagine that $ 250 million is even close to being the tipping point for Grace between solvency and insolvency.

The motion of the ACC and the Futures Representative also is striking for what it says about bankruptcy court proceedings. If anyone can figure out whether any entity such as Grace is or is not solvent, doesn't it make sense that it might be an experienced bankruptcy judge? And, if the court does make findings on solvency, why wouldn't the findings bind parties such as the ACC who were given meaningful prior notice of the hearing and the opportunity to participate in the hearing ?

As referred to above, another question of course is: why have the ACC and the Futures Representative asked the bankruptcy court to order that its findings on solvency should not mean anything anywhere else in the world. And, why would Grace not object to the motion when it has spent several years in arguments denying the extent of its alleged "asbestos liabilities" and, thus, its insolvency ?

In my opinion, the motivation for the motion is that a bankruptcy court finding that Grace is solvent would create an inconvenient truth for asbestos plaintiffs. Why? My view is that the asbestos plaintiff's bar does not want Grace found solvent because that ruling would have an adverse impact in state court asbestos tort cases where various state law rules apply to the allocation of damages and/or fault to solvent and insolvent entities.

Specifically, so long as Grace is viewed as insolvent, the laws of some states will completely block or limit the ability of co-defendants in asbestos trials to have financial liability or fault allocated to Grace. But if Grace is deemed solvent, those joint and several liability rules may not be applied and then co-defendants could use trial to have fault or damages attributed to Grace even if Grace does not have to actually pay out any cash. For example, in some states, a trial finding that Grace is 50% or more at fault could cause other defendants to become only severally liable for economic losses equal to their allocated percentage of fault. Thus, a finding that Grace is solvent could and should cause plaintiffs in some individual cases to collect less money from co-defendants when a jury or judge finds that Grace in fact was at fault for a particular person's asbestos disease. In short, joint and several liability rules why the ACC and the Futures Representative filed their motion asking that the bankruptcy court to order the rest of the world not to pay any attention to what the bankruptcy court says about Grace's solvency.

The ACC/Futures Rep. motion to "pay no attention to the findings" also indirectly highlights other absurdities and inconsistencies in the relationships between and interactions of state and federal tort trials and chapter 11 proceedings. The absurdities arise in both chapter 11 cases actually caused by mass tort claiming and in chapter 11 cases such as GM and Chrysler where the chapter 11 case was not specifically caused by a mass tort problem but the chapter 11 case injunctions have huge impacts on underlying tort cases as they purport to cut off present and future rights to bring lawsuits against debtors, insurers and others. Trying to cover all the inconsistencies would require a book, but the following provides some examples.

One example of inconsistency arises from the positions the plaintiff's bar takes regarding the role of federal supremacy. In most state court tort cases, plaintiff's lawyers bitterly oppose federal supremacy and federal preemption. Time and again, plaintiff's lawyers argue that state law should control tort issues. And, in the GM and Chrysler chapter 11 cases, the ACC and other tort claimants argued at length that state law rights could not and should not be cut off by an order and injunctions issued in a chapter 11 judge court. And, in the future, tort claimants of all kinds no doubt will say that plaintiffs were denied due process in the GM and Chrysler cases, and are not bound by those federal court orders.

In other contexts, however, the plaintiff's personal injury bar and future's representatives go to great lengths to support the power of bankruptcy courts to issue sweeping orders binding everyone in the world to whatever went on the bankruptcy court. In asbestos bankruptcies, the plaintiff's bar time and again argues that bankruptcy courts can and should deem themselves to have incredibly broad powers to create billion dollar trusts to help debtors exit chapter 11 and at the same time pay money to real - and not real - "victims." Along the road to the creation of such trusts, plaintiff's lawyers unabashedly sell the certainty created by the bankruptcy court injunctive orders under section 524(g) of the bankruptcy code. Look back at the terms of the Grace deal above - the plaintiffs bar sold certainty to Grace, to insurers, and to entities that bought assets from Grace.

Particularly worth noting is the way the plaintiff's bar sells certainty to insurers. The deal invariably is: agree to pay $ x now, $ x over ___ future years, and then you, the insurance company, can have the benefit of a federal court injunction protecting your company and its insurance policies from any more lawsuits involving asbestos or any other tort claims arising from the debtor. That certainty, it is said, will protect the insurer against "direct action" claims by plaintiffs, against contribution claims by other insurers, and against claims arising from what the insurer may or may not have hidden from the public. Indeed, being able to sell that kind of certainty was the central point of the facts related to this year's Supreme Court opinion in the Manville/Travelers case, which I've touched on before at posts such as this one. Thus, in that context, plaintiff's lawyers embrace and extol federal bankruptcy court supremacy and want bankruptcy court orders to apply in every case and every time so that the plaintiff's can sell more certainty to more entities at higher prices. Thus, that's one example of glaring inconsistency as the plaintiff's bar extols federal supremacy in that setting, but denies it in other state court settings and seeks to moot it through their motion to "pay no attention to the findings." (And by the way, the Supreme Court's oral argument questions - and its opinion - in Manville/Travelers both reflect the Court's lack of a meaningful record on or other knowledge of what actually happens in the chapter 11 mass tort cases that some of the justices characterized as "mysterious.")

3) Conclusion

The plaintiff's bar is enormously clever and creative. They have created two different compensation systems - one composed of $ 30 billion or more of asbestos trusts and the other composed of ordinary tort law suits. To better serve their clients and their own pocketbooks, the plaintiff's bar seeks to keep the two compensation systems apart so that they can have their cake and eat it too (a phrase Bates White has been the first and most public to apply to the situation). The motion to "pay no attention to the findings" is merely one of the more recent examples of how the two systems can be and are in fact being gamed. How can this happen? Because the two different systems are run by judges who have little or no detailed understanding of what is happening in the other system, and because almost all bankruptcy and state court trial court judges view their primary job as getting individual cases resolved, regardless of the consequences for others.

One final thought. Doesn't the motion bring to mind the Wizard telling Dorothy and the others to pay no attention to the man behind the curtain?

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(Caveat - the following includes shameless self-promotion.)

Asbestos litigation, and asbestos trust issues, are no longer uniquely American issues. To the contrary, asbestos litigation and asbestos trusts are growing rapidly outside the US.

Really ? Yes. Due to soaring mesothelioma rates that will not peak until 2020 or so, asbestos litigation is climbing rapidly across the EU (especially in the UK) and in Australia. There also are a close to a couple of hundred asbestos claims pending in Japan and a handful starting in Korea. Future claims are a certainty because asbestos use has for years been rising rapidly across Asia and Russia, not to mention ship-breaking and other activities in which asbestos is often removed in terribly primitive and unsafe conditions.

Asbestos trusts also are global, in at least three way. First, Manville and other trusts take claims from around the world and are receiving materially increasing amounts of claims. Second, as part of the Federal-Mogul bankruptcy, a trust was set up under UK law for claims arising from Turner & Newall. Third, private trusts have been set up by entities hoping to limit or avoid litigation. The trusts take claims arising from Cape, James Hardie and Eternit, among others.

Multinationals, insurers, Wall Street and lawyers are missing a significant part of the asbestos picture if less than a global view is being taken. The answer? Attend the Lexis/Nexis seminar on 29 and 30 September in London on International Asbestos Claiming. Yours truly is chairing the seminar. I think an excellent panel of lawyers is on tap from around the world, including David Miller, an authority on asbestos litigation in Australia, and Rod Freeman, an authority on product liability and asbestos litigation in the EU. And, because the US litigation s part of the world view, Motley Rice's Anne Kearse and Shook Hardy's Mark Behrens will speak from their divergent perspectives. I will speak on international asbestos trust issues and hopefully will challenge other speakers with some good questions. And, finally, Selvyn Seidel of Burford Advsiors will speak about third-party litigation funding - a topic everyone should know about because it's going to change the world of litigation in a big way.

The general website for the seminar is here, the agenda is here, and the roster of speakers is here.

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As posts on this blog reflect, there are in my view enormous issues out there regarding the interplay between asbestos trusts (mainly chapter 11 trusts) and the state court tort system. Happily, asbestos litigation seminars are paying an increasing amount of attention to the issues arising from the two parallel compensation systems. Two upcoming seminars offer great opportunities to learn more about the asbestos bankruptcy issues and much more.

Here are some specifics for the first of the two seminars:

1) HB Asbestos Litigation Conference Sept. 23-25 in San Francisco

The HB group took over from Mealey's and is running an upcoming 3 day asbestos litigation seminar. The program in general is excellent and is of special interest to me because of its focus on asbestos bankruptcy issues and because one of the chairs is fomer Chicagoan, Joe O'Hara, a lawyer who has tried asbestos cases for years for Owens-Illinois. Joe is now the Asssociate General Counsel for Owens-Illinois and a great lawyer I've known for more years than I want to admit. Joe and OI are very tuned in to the asbestos bankruptcy issues, and so the seminar program includes two Sept. 23 sessions focused on asbestos trusts and asbestos bankruptcy issues. In addition, numerous state court judges will be there and will end up hearing and/or saying a lot about these issues. Despite lots of other competing life events at that time, the sessions look so good to me that I'm flying out for just that day.

The specifics for the two asbestos trust and bankruptcy sessions are as follows; the speakers are quite knowledgeable:


2:30 Asbestos Claims Processing

•What bankruptcy trusts are operating and what are they paying?
• Timing of claims filing
• Best Practices - efficient methods for claim submissions
• Avoiding mistakes - areas of concern for claimant processing & payment
• W-9 forms, tax issues, 1099's to clients
• TDP's and processes within that may benefi t defendants
• Accounting for the money still in trust, the value of average mesothelioma claims & future projections on claims vs. assets and funds availability in trust

Francis McGovern, Esq., Professor of Law, Duke University School of Law
Larry Haden, President, Claims Resolution
Nicholas Vari, Esq., K&L Gates


3:45 The Surge in Bankruptcy Trust Payouts: Can You Make Everyone Happy? Maximizing Recoveries and Creating Fair Credit Allocation

• What adjustments should be made in the tort system to account for the bankruptcy payouts?
• What disclosure obligation should exist regarding pending trust claims, actual payouts, and expected future trust fi lings?
• Should the tort system encourage or leverage plaintiffs to file claims with the Trusts before the claims leave the system?
• Third party practice and the Defendants' interaction with the Trusts

Moderator: Joseph O'Hara, Jr., Esq., V.P. & Associate G.C., Owens-Illinois
Hon. Richard Aulisi, Supreme Court Justice, 4th Judicial District of New York
Hon. Ken Kawaichi, (Ret.), JAMS
Hon. James McBride, Superior Court of California
Joseph Belluck, Esq., Belluck & Fox LLP


To register, the HB home page is here. The entire asbestos agenda is here. In this tough yuear for budgets, note that inside counsel from corporations and insurers are invited to attend free of charge.

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When and how does an asbestos trust own enough shares of the company for which it assumed "asbestos liabilities" ? And, should chapter 11 trusts be involved in transactions of a type that some say are sometimes tax dodges?

These questions are posed for several reasons. One is that under bankruptcy code section 524(g), a chapter 11 asbestos trust is required to own prescribed amounts of shares of stock of the company for which it assumed asbestos obligations. That rule, some say, is mainly honored in the breach.

Another reason for posing the questions is that it is interesting to watch the ways in which the trusts sometimes act much like, if not exactly like, the corporate financiers that plaintiff's lawyers often trash in the course of jury trials. How so? Below are the facts and links regarding the AWI Trust recently using a prepaid variable forward sales contract to cause the more or less sale of shares of AWI.

What is a prepaid variable forward sales contract? It is one of the many exotic financial paper created by Wall Street to create new ways to own and sell shares of stock without, they say, selling shares. (One is reminded of Humpty Dumpty's scornful proclamation " When I use a word, it means just what I choose it to mean -- neither more nor less." )

The IRS has declared a war of at least strict scrutiny on these transactions as potentially or actually illegal tax shelter transactions, as described here by the TaxProfBlog and here by the NYT. This WSJ article explains that the transactions also have been attacked as tools used by executives to sell shares ahead of price drops without really selling shares, they say.

Call me naive, but doesn't it seem odd that trusts operating under the aegis of federal courts would engage in transactions of a type the IRS deems dubious ? No doubt the trustees and the trust advisory committee would counter that they have a fiduciary duty to make money for claimants. Maybe true, but that sounds an awful lot like the corporate argument that we have a duty to our shareholders to make money. In personal injury jury trials involving risks and cost benefit analysis, plaintiffs love to attack the corporate duty to make money argument as putting profits ahead of people, or profits ahead of morals.

On the subject of the AWI Trustees and the Trust Advisory Committee (TAC ) wouldn't you think the Trust's website would identify them? If it does, I sure can't find the names anywhere despite using the search box on the website to search for names including Kazan, Weitz and Cooney. I dropped the trust an email this morning asking for the names and whether I missed them on the website. We will see if an answer comes back.

____________________________________________

On August 11, Armstrong World Industries announced that its Asbestos Trust is raising $ 180 million in cash by selling some shares outright and more shares pursuant to a prepaid variable forward sale contract that is said to be part of reinvigorating AWI. According to the press release from Armstrong World Industries:

"Armstrong World Industries Comments on Sale of Asbestos Trust Shares to TPG
LANCASTER, Pa., Aug. 11 /PRNewswire-FirstCall/ -- TPG Capital ("TPG") announced it has agreed to purchase seven million shares of Armstrong World Industries, Inc. ("Armstrong") (NYSE: AWI), and economic interests in an additional 1,039,777 shares, from the Armstrong World Industries Inc. Asbestos Personal Injury Settlement Trust ("the Trust"). TPG's purchase price per share of $22.31 is the 20-day trailing volume-weighted average price through Friday, August 7. The transaction is expected to be completed during the next several weeks, and will result in approximately $180 million of proceeds for the Trust. (emphasis added). "


A form 4 from the Trust explains the transaction as follows:

"Explanation of Responses:
1. On August 10, 2009, the reporting person entered into a prepaid variable forward sale contract with TPG Partners V, L.P. and TPG Partners VI, L.P. (collectively, "TPG"). The contract obligates the reporting person to deliver to TPG 1,039,777 shares of AWI common stock (or cash as provided in the contract) on the maturity date of the contract. The maturity date is the 20th trading day beginning on November 4, 2013. In exchange for assuming this obligation, the reporting person will receive $23,197,425 at closing of the contract.
2. The reporting person pledged 1,039,777 shares of AWI common stock (the "Pledged Shares") to secure its obligations under the contract. While the reporting person retained dividend and voting rights in the Pledged shares during the term of the pledge, the reporting person is obligated to pay TPG dividends received on such shares and is party to a shareholders agreement with TPG relating to such shares.
3. The settlement price will be based on the 20 day AWI common stock price preceding the settlement transaction date, and the contract can be settled in cash or in the release of sufficient Pledge Shares to satisfy the settlement payment (as determined at the settlement price)."

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The 2d Circuit has issued its opinion explaining its affirmance in Chrysler. Go here for the opinion, and go here for an AmLaw summary. The AmLaw summary, however, does not mention tort claimant issues.

The opinion is now on my pile for reading next week while I am on vacation.

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Significant mass tort bankruptcy issues are being contested as the W.R. Grace asbestos chapter 11 case moves deeper into its phased confirmation hearing. Subsequent posts will touch on some of the issues and pleadings.

Two issues are of perhaps greatest overall note. First, multiple objectors are arguing that Grace in fact is solvent, and so they argue the plan is not confirmable because the payouts called for by the plan violate, they say, various subsections of code section 1129 regarding the relative rights to payments as between creditors and equity holders. In short, they say the equity owners are being allowed to keep too much in the way of assets.


Another big picture point is that the Grace case presents an unusual and wide-ranging set of plan objectors, with most or all of the challengers having apparently uncontested standing to object to the plan. So, this chapter 11 case could end as one of the few asbestos chapter 11 cases that actually ends with rulings and judgments instead of the usual bankruptcy court deals.

As a reminder of how Grace came to this juncture, recall that on April 7, 2008, W. R. Grace announced a settlement in principle of many but not all of the asbestos injury claims related to its long-running Chapter 11 case. The settlement occurred when the case was in the midst of a hotly contested trial on "liability estimation" for personal injury claims. Grace had presented significant evidence on the flaws of the "mass screened" asbestos cases, and was slated to present further evidence intended to diminish the value of future claims. Overall, Grace was putting on evidence to prove that many or most claims against were frivolous claims. Part way through that battle, Grace and the ACC (the Asbestos Creditor's Committee) reached a deal.

The prior settlement deal is described in the excerpts set out below from this article by Alison Frankel in the online American Lawyer.

Familiar Faces Central to W.R. Grace's Settlement of Asbestos Claims
The American Lawyer
By Alison Frankel
April 09, 2008

***
Familiarity doesn't preclude disagreement, however. W.R. Grace, which was forced into Chapter 11 bankruptcy in 2001 by asbestos liability, estimates the settlement to be worth less than $2.5 billion in present day value. The plaintiffs lawyers say its present value is closer to $3 billion.
The trust that will pay out asbestos claims will be funded by a $250 million cash contribution from Grace (payable on the company's emergence from Chapter 11); an additional $1.55 billion from Grace paid over 15 years, beginning in 2019; Grace's asbestos insurance coverage, worth an estimated $600 million; warrants to purchase Grace shares; and more than $1.2 billion in previous settlements with companies accused of fraudulently purchasing Grace assets.
Unlike previous bankrupt companies that reached deals with asbestos claimants, W.R. Grace went to trial to challenge the plaintiffs lawyers' estimation of its liability for the more than 100,000 asbestos claims it faced. Claimants estimated that liability to be $3.5­ billion to $7 billion. Grace contended it owed less than $800 million, though it set asbestos reserves at $1.7 billion.
Beginning in January, Delaware federal bankruptcy court Judge Judith Fitzgerald presided over a trial to determine both the appropriate way to estimate claims and the total value of those claims. Grace had concluded its case and plaintiffs lawyers had presented their first witness when the deal was reached.

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Wow - see here for a basic article on the Lehman fees, and here is a link saying that Prof. LoPucki thinks fees may end up at slightly less than $ 1 billion.

Among the fee earners, lawyers are doing well as shown by the exceprt below from an article on Lehman by LAW360 is a subscription service.

http://bankruptcy.law360.com/articles/110521

By Anne Urda

***
Thus far, Lehman has paid the firm an estimated $114 million for its services, which has included Marsal taking over the reins at Lehman and guiding it through the bankruptcy process.
In May and June alone, the firm earned $18 million for the interim management provided, according to the report.

Lead counsel Weil Gotshal & Manges LLP has also raked in an estimated $63 million for the work it has performed on the massive bankruptcy case thus far, with special conflicts counsel Curtis Mallet-Prevost Colt & Mosle LLP collecting an estimated $6 million over the past few months for the work performed, the report revealed.

Milbank Tweed Hadley & McCloy LLP, which serves as lead counsel for the creditors committee, reaped just over $17 million for the hours logged, while court-appointed examiner's lead counsel Jenner & Block LLP has been paid more than $6 million for services rendered so far, according to the report.

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Updated: Nothing is simple. Some links below are not working to see the underlying documents were uploaded as "pdf packages" instead of simple .pdf files. So, while the link provider figures why a package is a problem at least on some browsers, you may find it easier to see the papers on the free THAN website, which is here. See docket numbers 453 (objection of Waters & Kraus), 454 (Kraus Declaration), 455 (Debtor's response), 456 (Bae declaration), and 457 (Kozen declaration). My apologies for the hassle.

How much money are asbestos claimants obtaining from asbestos bankruptcy trusts ? Unfortunately, different people will give you different answers, and they can sometimes get away with it because most if not all of the asbestos trusts fail to act in a transparent manner. However, some concrete facts about payouts from one trust in formation have now surfaced in papers filed in the Thompson-Hayward asbestos-driven chapter 11 case (commonly known as the THAN case). The papers are especially significant because they include facts about asbestos payments that are set out in a declaration from a credible source - highly successful plaintiff's lawyer Peter Kraus. And, his declaration is backed by confirming emails and spreadsheets. The bottom line, further explained below, is that his declaration and supporting spreadsheets prove significant tort system payments by THAN to Waters + Kraus clients, and that his law firm expects equally large payments for the firm's clients when the THAN trust starts operation. How much? Over $ 700,000, per Waters + Kraus claimant.

How has this information surfaced ? Claimants represented by the Waters + Kraus firm filed with the bankruptcy court late last month a last minute and technically untimely objection to plan confirmation ( I say technically untimely because bankruptcy court deadlines are often absurdly short, and one could very well make that argument here.) The facts about present and expected payments are set out in the Waters + Kraus objection and related papers. The objection already has been denied by Bankruptcy Judge Gerber (yes, the same Bankruptcy Judge Gerber who is hearing the GM case). But, denial of the objection does not change the facts stated in the papers. Meanwhile, Waters + Kraus has filed an appeal to the district court.

What do the papers show about tort system payments? The papers show that the THAN-related entities and Waters + Kraus agree that there was an average tort system payment of at least $ 710,000 per claimant to about 65 mesothelioma claimants represented by the Waters + Krause firm. Why so much ? Mr. Kraus' declaration attributes the average to his firm's zealous investigation of and ability to prove up THAN's history as a seller of asbestos fibers (fyi, THAN also was a maker of Agent Orange). Mr. Kraus' declaration includes supporting spreadsheets listing the claimants represented by his firm by name, along with the 4 digits of their social security numbers. His declaration also includes an interesting form of agreement with respect to solicitation of votes for the prepack.

What do the papers say about payouts from the upcoming THAN trust? read it for yourself, but to me the essence of Mr. Kraus' declaration is the assertion that the Waters + Kraus lawyers agreed to recommend that their asbestos clients vote in favor of the THAN plan based on prepack negotiations in which lawyers for THAN and related entities assured Mr. Kraus that the trust would be created so that payouts to clients of his firm would be on average at least as ample as the tort system payouts.

What are the exact numbers? The papers, indicate a slight disagreement as to the average amount of tort system payments to the 65 claimants. Mr. Kraus asserts that the average payment in the tort system for Waters + Kraus claimants was $ 721,000 per claimant. But, as Mr. Kraus acknowledges, counsel (Mr. Kozen) for an entity known as PENAC (a Phillips Electronics entity) had asserted $ 710,000 as the average, with this modest disagreement apparently never brought to a close.


What other testimony is in the record? Lawyers for THAN (Mr. John Bae) and PENAC (Mr. Michael Kozen) submitted declarations to counter Mr. Kraus' testimony as to exactly how the deal was negotiated and expressed. I commend reading the papers to make your own decision about whether they actually assert a meaningful distinction from the statements of Mr. Kraus. But, plainly their testimony does not take issue with Mr. Kraus' fundamental assertion that he ended the negotiations understanding that the trust is expected to make payments to Waters + Kraus claimants that are consistent with the tort system payments of well more than $ 700,000 per Waters + Kraus claimant. Under the "forthright negotiator" line of reasoning, what he and they knew about the negotiations are relevant facts.

Where are the papers? At least for now, all the papers are available on the free THAN website, which is here, or of course are available through PACER. In addition, copies of some of the papers I thought relevant have been posted to a hopefully permanent spot on the web. Mr. Kraus' Declaration (with exhibits) is here. Briefs and other motion papers are here. And here are the declarations from Messrs. Bae and Rozen.

A future post will provide more on why these numbers are so important in underlying tort cases, and why the numbers and papers provide yet another example of why it is poor policy to allow most if not all of the chapter 11 trusts to operate, as they do now, with virtually no automatic transparency at the claimant by claimant level and with layers of hoops and burdens "baked in to" trust distribution procedures to thwart, delay and increase the expense and difficulty of obtaining meaningful information from the trusts. As always, please bear in mind my continuing disclosure about my work and history to the extent anyone wishes to say they color or inform my statements.

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The Ad Hoc Committee of Asbestos Claimants notice of appeal in GM is here but says only that an appeal is taken(Docket No. 2988). The appeal lists as counsel both Stutzman, Bromberg, Esserman + Plifka, as well as the Caplin + Drysdale firm. Like the other product liability claimants, the Ad Hoc Asbestos Claimants also have moved for a direct appeal to the Second Circuit. The Ad Hoc Committee also has moved for a stay of the sale approval order entered on Sunday night the 5th of July.

The core of the Ad Hoc Committee's substantive argument is as follows:

"12. Congress has proscribed the very conduct that the Debtors seek to accomplish through their improper Section 363 Sale--i.e., the transfer of substantially all of their assets to a "new" entity that will simply continue operating free from the liabilities of the old entity--in two parallel provisions of the Bankruptcy Code: Sections 1141(d)(3) and 727(a)(1). The Second Circuit has held that claims--and specifically successor liability claims--are not discharged by a corporate iquidation in bankruptcy. In re Goodman, 873F.2d 598, 602 (2d Cir. 1989). The Bankruptcy Court's erroneous interpretation of Section 363(f) effectively nullifies Sections 1141(d)(3) and 727(a)(1) by improperly allowing the Debtors to circumvent these Code provisions under the guise of a Section 363 sale.


13. Furthermore, the Sale Order purports to allow the Debtors to sell substantially all of their assets free and clear of "claims." However, successor liability is not a "claim," but rather is a status a purchaser has under applicable state law. Thus, Section 363 cannot apply to strip a purchaser of that status."


The Goodman case is a chapter 7 case, not a chapter 11 case, so GM presumably will argue it does not apply. Goodman, however, is a fairly compelling case for the product liability claimants. In Goodman, a businessman and his wife cover a period of years created a series of three businesses to do essentially the same work. The first company was party to labor contracts the later companies did not want to honor the prior labor obligations that had become inconvenient and expensive, and the first company had tried to discharge the obligations through chapter 7.

The Second Circuit held that the bankruptcy court order could not oust the jurisdiction of the NLRB to determine if the later entities were in fact successors to the old business regardless of the corporate niceties that purported to create differences between the different entities. So, in GM, the argument for the claimants runs that just as the bankruptcy court in Goodman could not deprive the NLRB of its power to consider whether the new entities should suffer successor liability under labor laws, the bankruptcy court in GM can not oust state courts of their traditional jurisdiction to decide whether and when to impose state law tort liability on alleged successor entities. The issues could be decided as matters of statutory construction grounds or constitutional law grounds (due process, 5th amendment takings , and maybe even equal protection under Bush v. Gore), but standard legal rules urge courts to resolve issues as a matter of statutory construction before reaching constitutional issues.

(Ironically, by the way, the Goodman case was argued and lost by Mr. Bruce Zirinsky while at Weil, Gotschal. Today, Mr. Zirinsky is with Greenberg Traurig and is the lead lawyer for the debtor in the Thompson -Hayward Chemical Co. asbestos chapter 11 case for which a chapter 11 plan was recently approved by the same Judge Gerber. Thompson-Hayward is a former manufacturer of Agent Orange and seller of asbestos fibers that is using chapter 11 to end its asbestos litigation issues and to settle out hundreds of millions of dollars of insurance policies that might otherwise be available to future claimants who could file direct actions against insurers.)

Meanwhile, the Individual Accident Litigants in GM also have sought a direct appeal to the 2d Circuit; the papers are here (Docket No. 2990). The accident litigants point out that the 2d Circuit still has not issued an opinion in Chrysler to explain the reasoning behind its judgment to approve the 363 asset sale. The accident litigants argue that this appeal in GM may also inform the Chrysler opinion the 2d Circuit said it would issue in due course, thus sharpening the issues for ultimate appeals to the Supreme Court in both Chrysler and GM.

The Individual Accident Victims further frame the issue in broad societal terms, arguing that society has a real stake in whether Code section 363 can be used to indestructible asset sales followed by de facto liquidations, a technique Wall Street can and does use to cause the bankruptcy code to cause immediate distributions of remaining assets before long tail tort claims emerge and are compensable. The Accident Victims frame the 363 issue as follows:

Indeed, this issue is one of the most important issues facing bankruptcy practitioners and distressed debtors generally.Satisfactory uniform resolution of the scope of Section 363 is critical for the entire nation, particularly since, as Professors Baird and Rasmussen wrote in The End of Bankruptcy, 55 Stan. L. Rev. 751, 752 (2003):

"Corporate reorganizations have all but disappeared. Giant corporations make head-lines when they file for Chapter 11, but they are no longer using it to rescue a firm from imminent failure. Many use Chapter 11 merely to sell their assets and divide up the proceeds.... Rarely is Chapter 11 a forum where the various stakeholders in a publicly held firm negotiate among each other over the firm's destiny"

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Yesterday, representatives of the asbestos plaintiff's bar argued in opposition to the terms of GM's proposed asset sale, as briefly described in the NYT article here. The WSJ covered it here , but said even less.

Accounts of the hearing and other information sources also indicated that New GM will be aiming for an IPO next year, as described in this WSJ article. It surely will be interesting to read the disclosures and caveats in the prospectus when New GM tries to sell shares next year and the prospectus tries to disclose and explain the material long-term legal risks inherent in the present rush through chapter 11 in a manner that raises significant issues regarding the enforceability/constitutionality of the present proceedings.

Down the line, expect that disappointed asbestos claimants and/or car dealers may well sue New GM regardless of the bankruptcy court orders and/or may proceed with collateral attacks of the sort that were successfully raised in the Agent Orange cases when "later" tort claimants were allowed to sue the Agent Orange makers despite the prior class action and prior settlement. Why were the "later" claimants allowed to sue? Because they were not yet hurt and so did not yet have claims when the Agent Orange issues were in court, and no one in court actually protected their interests in a conflict free way. In short, the future claimants did not receive due process during the original Agent Orange proceedings.

How does that apply here? When New GM goes to sell shares, one can expect that disappointed asbestos claimants and car dealers will assert that this chapter 11 case has been unconstitutional. The result presumably will be the IPO share price will fall due to whatever value the market gives the uncertainty about whether New GM really is immune from future claims. If/when that happens, everyone will find themselves back in the type of situation that arose when the goal was to create a public market for shares in the Manville entity that emerged from chapter 11. Back then, concerns were raised that Manville shares were undervalued because of uncertainty regarding whether the outcome of the Manville bankruptcy would be legally sustainable over the long term due to constitutional and other legal issues arising in Manville's chapter 11 case. Ultimately, to help drive up the share price, Congress in 1994 enacted bankruptcy code section 524(g) to retroactively "bless" the result in the Manville bankruptcy.

How did 524(g) work? The statute did well to create short-term value that Wall Street could sell. But, the terms of section 524(g) ultimately proved to be a huge mistake since the section gave enormous leverage to holders of even meritless or de minimis tort claims. How did that happen? Section 524(g) says that a 524(g) injunction can issued to bar future asbestos claims only if the chapter 11 plan is approved by 75% of the asbestos claimants, and the statute did not on its face draw lines between the holders of meritless claims and the holders of more meritorious claims, such as the claims of victims of mesothelioma, a disease plainly caused in many cases by inhalation of asbestos. Therefore, due to the terms of section 524(g), and due to various tort law developments, the game for plaintiff's lawyers and claimants became all about aggregating thousands of asbestos claims, regardless of merit. Thus, in trying to fix a short-term problem, Congress itself helped to incentivize the x-ray vans and other union screenings that later lead to mass filings of law suits that started spiraling up in the mid to late 1990s and by 2000-2001 had exploded to the point that even more companies were driven into chapter 11.

_________________________________________________________________
P.S. The absence of transparency in bankruptcy continues. It would be interesting to read the argument and questions underway in GM, and indeed one would think that would be easy for this nationally important case for which the public and other businesses could and should be fully informed through prompt online publication of free copies of the hearing transcript. But that will not happen for 90 days because GM, the official committees, Judge Gerber and the Obama Administration's Auto Task Force have not taken the simple step of entering an order allowing immediate electronic posting in the docket of the hearing transcripts, a step that is taken 90 days after the hearing. Instead, they continue to tolerate (enjoy?) the antithesis of transparency, which is a short-sighted bankruptcy court rule requiring 90 days of delay for publication of hearing transcripts due to fears that a social security number or other like information might be uttered during the hearing and then published in a piece of paper.

In a painfully minor nod to this lack of transparency problem, the Court's website says that audio tapes will be put on PACER, but this week's hearings still are not online as audio files as of July 2 at 12:00 pm. So, for now, those with extra money can buy unofficial transcripts for however many hundreds or thousands of dollars they are being sold. Or, one can wait and slowly wade through the e online audio transcript when they some day are made available through PACER. Or, you can wait and be fully informed long after the information is most useful. Go here to read more about the audio transcripts. The same text also is set out below. If you do listen, let me know if you hear the lawyers or Judge Gerber mention any social security numbers.

______________________________________________________________

Announcement

The United States Bankruptcy Court for the Southern District of New York is pleased to announce a pilot project to make digital audio recordings of court proceedings relating to Chrysler LLC, 09-50002, and General Motors Corporation, 09-50026, publicly available online. The audio files are accessible through the Public Access to Court Electronic Records (PACER) system. Registration for PACER access may be obtained at http://www.pacer.psc.uscourts.gov/

Please remember that these digital recordings are copies of court proceedings and are provided as a convenience to the public at the cost of $0.08 per audio file. In accordance with 28 U.S.C. § 753 (b) "no transcripts of the proceedings of the court shall be considered as official except those made from the records certified by the reporter or other individual designated to produce the record." A list of approved transcription companies can be found on the court's website.

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In light of this morning's news from the General Motors chapter 11 case, and emails landing in my inbox of late, this seems an apt time to mention that the recession, chapter 11 cases and asbestos litigation are all intersecting at upcoming asbestos litigation conferences.

For one, Perrin Conferences is hosting a September 14-16 asbestos litigation conference in San Francisco. In a nod to the recession and slashed corporate budgets, Perrin Conferences is offering free registration to inside corporate lawyers. Go here for the agenda.

The entire conference looks excellent for both substance and speakers. My eye was particularly caught by the seminar's day three panel on chapter 11 cases related to asbestos claims. Who knows what the world will look like by then, but for now, the panel is top notch:


9:00 AM - Asbestos Bankruptcy: New Filings, Confirmations & Dismissals

Overview of the current Chapter 11 asbestos bankruptcy landscape, Part I: Why are these companies still in bankruptcy?

Overview of the current Chapter 11 asbestos bankruptcy landscape, Part II: Who are these new filers and how are they doing?

Overview of the asbestos trust process, the Three "C's": Claims, Contribution and Cooperation
Will there be any defendants left? The automotive industry and bankruptcy

Joseph F. Rice, Esq., Motley Rice LLC, Mount Pleasant, SC
Charles Mullin, Litigation Resolution Group LLC, Washington, DC
Robert Phillips, Esq., SimonsCooper, LLC, East Alton, IL
Lucy P. Allen, SVP, Mass Torts and Product Liability Chair, NERA Economic Consulting, New York, NY

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In the GM bankruptcy, Judge Gerber has entered today his order [Docket No. 2857] denying the asbestos claimant's motion for appointment of a futures representative for asbestos claimants. He also adjourned to another day the motion requesting appointment of a separate official committee to represent asbestos claimants against GM. The latter motion may be put back on for hearing on three day notice. One wonders what negotiations are ongoing and what evidence is being gathered. The order is here.

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A new article is out regarding problems with asbestos bankruptcy trusts, which are the antithesis of transparency, as previously described here and here. In a prior article last year, three Cozen O'Conner lawyers (they represent insurers) wrote a significant Norton Bankruptcy Journal article detailing the lack of transparency in the asbestos trusts. The authors are William P. Shelley, Jacob C. Cohn and Joseph A. Arnold. You can obtain the full article here at Cozen's website.
Now, Messrs. Cohn and Arnold are back with an updating June 22, 2009 article titled: New Generation of Asbestos Trusts Encourages Double Dipping. The article is published at the Daily Journal, which requires a subscription.

Among other things, the article describes two recent events that are helping focus more sunshine on the asbestos trusts and give trial defendants the benefit of offsets. Thus, they describe a Washington state court decision in which a trial judge allowed "asbestos defendants "a setoff for amounts: "received to date," "agreed to and to be received," "that can be obtained by application to existing bankruptcy trusts" and "that can be obtained from bankruptcy trusts expected to soon become available" Coulter v. AstenJohnson, 2008 WL 4103199 (Wash. Super Ct., May 30, 2008). The authors also address developments in Los Angeles where the judge presiding over asbestos cases issued a May 27 Third Amended General Order No. 29 requiring plaintiffs to file a case report disclosing basic product identification and exposure information, and to attach a "copy of each bankruptcy proof of claim relating to asbestos exposure which plaintiff(s) has submitted to any bankruptcy Trust."

As simple as those steps sound, most trial courts have not yet entered similar orders. Why? Some plaintiff lawyers have too often managed to defeat letting sunshine make a its way into asbestos trusts. Much more sunlight is needed.

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Non litigation alternatives are indeed being pursued in GM to try to settle pending and future product liability claims, as is evidenced by a Friday's June 26 Wall Street Journal article my Mike Spector and Jeffrey McCracken regarding state attorney generals trying to negotiate with the Obama administration over the treatment of product liability claims in GM. The article does not provide any specifics on where the money would come from, but my bet is still on the concept of asking the government to turn over some of its ownership rights in "new GM" to a product liability trust created to pay claims.

The article does not mention multiple key issues that would have to be addressed if a trust is created. One would be: how will someone decide whether or when future product liability payments would be made. Would the claims be made be made through a trust with money set aside to pay claims? Would claims be processed administratively without a trial ? Would the bankruptcy court delegate to state courts the job of trying cases to resolve claims through actual trials ?

Beyond those direct issues, consider also the important rights and interests of the myriad other entities who are routinely sucked into product liability cases with GM when cars are in crashes. Let's assume a trust is set up to pay future product liability claims from a financial base comprised of some cash and stock, as is typically done in asbestos bankruptcy trusts. If a trust is created, then multiple issues arise.

One issue when and how the trust coordinates with state court tort system claims and the rights of other tort system defendants. Suppose, for example, that a car crash victim driving a GM car claims that he is a quadriplegic because a seat malfunctioned. Assume also that the claimant cannot sue GM due to the bankruptcy court having issued an injunction purporting to prohibit future product liability claims against New GM, and old GM has no money. Suppose the quadriplegic does not sue either Old or New GM and instead files a state court lawsuit that names as defendants the entity that manufactured and sold the car seat system to GM, the manufacturer of a component of the seat, and the car dealer that sold the GM car.

In that state court lawsuit, can those defendants do what they would normally do in the state court tort system, which is to bring a contribution or indemnity claim against GM (or the trust) if GM designed and specified the car seat system and/or the characteristics of the component? What are the rights of the car dealer who argues that she should not have to pay any money because all she did is sell the car? Can her company obtain indemnity from that trust or GM ? Can the plaintiff file a claim against the trust and keep it a secret from the parties to the state court litigation on the grounds that processing a trust claim is "a settlement?" Can the plaintiff take the state court case to trial, win money and then later obtain additional money from the trust?

All of these issues are very real, and exemplify problems that have been dealt with badly in asbestos bankruptcy cases where the rights of co defendants have been given at best nominal treatment, and trusts have frequently failed to honor the rights of co defendants. The problems are exacerbated by the reality that many but not all members of the plaintiff"s bar have been gaming the overall compensation system by bringing a state court claims for asbestos injuries, but trying terribly hard to keep the state court defendants from learning anything about claims submitted to any of the many asbestos trusts that collectively hold something in the vicinity of $30 billion. The problems also are made worse by terms in many of the asbestos bankruptcy trusts that purport to allow the plaintiff's lawyers and their clients to resolve the state court claim in full and to then later bring claims against the trusts, thereby obtaining compensation twice in some but not all cases.

Why have these lousy situations emerged in asbestos bankruptcies ? There are a variety of answers and factors, including the plaintiff's bar and debtors trying to keep co defendants and insurers from being allowed to exert any rights in bankruptcy. Another problem is that the bankruptcy court lawyers and judges in general have little or no understanding of the intricacies of product liability claims. Yet another problem is that the bankruptcy code was not designed in terms of its intersection with product liability claims, in part because product liability as we know it today did not really take off and become a major issue until the 1970s. And, when an asbestos bankruptcy code section was added in 1994, the section was very poorly done and bears much of the blame for the asbestos bankruptcies. Yet another problem is that insurance that might be used to pay such claims is often compromised through "an insurance policy buyout" in which an insurance company agrees to pay a fixed amount of money in return for the insured company releasing all of its rights under the product liability insurance. To the dismay of product liability claimants, the money generated by such buyouts typically is not put into a trust and instead of the money may be used for any other purpose, including trying to stave off bankruptcy by paying fees to lawyers and/or investment bankers, or may be be used to pay off secured creditors, leaving no source of funds for product liability victims. And, cynics have said that bankruptcy courts are out of control and so pro-debtor that they will do anything to get a debtor out of chapter 11, including trampling the due process rights of co defendants and tort victims.

One hopes that a much better solution will be created for the GM and Chrysler bankruptcies. One hopes that a better solutions will then be implemented for past and future asbestos bankruptcy trusts. Some but not all of the existing asbestos trusts have failed to respect the rights of tort system of co defendants, and have left the remaining manufacturers to beat he financial burdens created by the bankruptcies of other defendants. This would be a great time to start fixing some of the myriad problems created by the intersection of "long tail liability" claims and chapter 11 cases.

Here are a key excerpts from the Wall Street Journal article:

"The case law is unclear and ambiguous on the issue of future product-liability claims. So when the case law is all over the map, a lot of times it makes sense for both sides to settle," said one administration official."

***

Last year, GM set aside $921 million for product-liability litigation, and in 2007 it had $1.1 billion available.

"Everyone agrees there has to be some access to the courts," said Maryland Attorney General Douglas Gansler, a Democrat who co-chaired Mr. Obama's presidential campaign in the state.
The auto task force has been caught off guard by the recent outcry from attorneys general and consumer groups. The task force modeled GM's bankruptcy plan after Chrysler's, without giving much weight to the potential fallout from leaving product-liability claims behind, said people familiar with the matter."

"In opposing GM's product-liability plan, state attorneys general are raising a number of complex legal issues, ranging from the power of federal bankruptcy courts to supercede state law to constitutional due-process rights of Americans to sue GM if they're injured by the auto maker's vehicles in the months and years ahead."

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An article here provides a quick comment from Elizabeth Warren and mentions law students who helped Prof. Isacharoff.


A Law360 article here includes the following quotes:

"Gary Svirsky, a partner in O'Melveny & Myers LLP's securities litigation practice who has been observing the case, said in an e-mail that the Supreme Court "opted to rule on the narrowest of grounds." The court may have opted to keep its decision narrow "so as not to unduly limit the court's flexibility in addressing complex problems that might be raised in future bankruptcies," such as the recently filed bankruptcies of U.S. automakers, Svirsky said."While beyond the scope of this report, the issues posed by nonderivative claims remain open and alive after this decision in our opinion," he said.
The court "seems to have gone out of its way to not adjudicate the actual merits of the dispute and just say that it has to progress in an orderly fashion from the bankruptcy court," said Samuel Issacharoff, a New York University law professor who represented asbestos claimants in the case before the Supreme Court.serving the case, said in an e-mail that the Supreme Court "opted to rule on the narrowest of grounds."
An Am Law blog article by Alison Frankel reminds readers of prior exuberant comments by Travelers' counsel, Mr. Ostrager, and quotes him as follows:

Ostrager told the Litigation Daily by e-mail that the Supreme Court ruling is "100 percent in our favor." He added: "Every aspect of the Second Circuit's substantive legal reasoning was rejected (either expressly or by implication). It is, therefore, a complete and total victory."

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I've been through the opinion and dissent (here) a couple of times. Travelers won, sort of, and the Second Circuit was reversed, sort of. While reading, I wondered how much the opinion was or was not shaped by the efforts to stay the order on the asset sale in Chrysler, and the now pending efforts to obtain certiorari. We may know that answer some day, but who knows.

Further reading and reflection is in order, but some immediate reactions are as follows, bearing in mind that my reaction is influenced by recency. Specifically, this past Monday, I listened to a talk by Professor Jeffrey Rosen to the Chicago Lawyers Club regarding the Supreme Court. He spent some time focusing on his interview of Chief Justice Roberts and the Chief Justice's hope to use "business cases" to produce unanimous narrow rulings to enhance the authority of the Court. (BTW, lots of people have lots of things to say about Professor Rosen and shifting views, e.g. here, so I am not holding him out as "the expert.") Today's Manville/Travelers ruling is not unanimous due to the two dissents but certainly does fit the "narrow" criteria.

For Chapter 11 cases that involve material amounts of product liability claims, including Chrysler, GM and "asbestos bankruptcies," the Manville/Travelers decision today is so narrow that all sides likely will claim to take some comfort from the ruling. Realistically, no one can claim to have won a clear victory through today's opinion, except that Travelers is happier today than it would have been if Justice Steven's dissent were the Court's ruling. In fact, today's ruling is so narrow that the case is sent back to the 2d Circuit for more proceedings as to which entities are or may be bound by the prior rulings. The opinion thus highlights the importance of the 2d Circuit's conclusions and reasoning in 1) the direct appeal in Chrysler and 2) its opinion on remand in this case.

The opinion can be read to suggest that it is safer to challenge bankruptcy court rulings on direct appeal instead of through rulings in other, later legal proceedings, such as future product liability cases against the debtor or an alleged or actual successor entity, such as New Chrysler. That message will not be lost on 1) debtors that sold mass produced products, 2) product liability claimants, and 3) all other parties to state court product liability cases that involve a product made or sold by a debtor, including component suppliers and other co-defendants in the state court tort suits. Insurers also no doubt will take note too. Certainly today's ruling puts more focus on the presently pending direct appeal papers now in front of the Supreme Court in the Chrysler case.

No doubt others will have comments over the next few days; I will try to collect comments into one post.

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and available here, but I've not yet read the opinion.

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Walter Olson 's PointofLaw has a June 12 post about Judge Weinstein writing a pessimistic paper about the way courts handle mass tort claims. Judge Weinstein may feel the need to write again after considering the Manville Trust's quarterly report for the 1st quarter of 2009. The report is available here, and is depressing both for what it shows and what it does not show.


The visible and depressing part of the report involves nonmalignant claims - the ones that seemingly have been fading away. But, that's not true for Manville during the first quarter of 2009. Instead, nonmalignant claims went back up - significantly - contrary to prior trends. They are said to be category 2 nonmalignancies, which means "asbestosis/pleural plaques" with a scheduled payment of $12, 000 (subject to prorated payment ) under the terms of the 2002 Manville TDP procedures available here - see page 7.

Specifics? Doing a little math from figures shown in the report's cover letter to Judges Lifland and Weinstein, it looks like there were about 2,900 nonmalignant claims, which is far more claims than ALL the Manville claims filed in 1Q 2008. According to the report's cover letter:

"During the first quarter of 2009, the Trust received 4,853 new claim filings compared to 1,776 for the same period of 2008. The malignant filing population has accounted for approximately 40% of the total for the first quarter of 2009 claim filings compared to 68% for the first quarter of 2008. The percentage decrease in malignancies is attributed to the sharp increase in the filing of unimpaired non-malignant Level 2 claims." (emphasis added)

"The Trust settled 3,749 claims for $30.4 million during the first quarter 2009 compared to 1,582 claim settlements for $14.8 million during the same period of 2008. The average settlement amount for the first quarter of 2009 and 2008 was approximately $8,100 and $9,300, respectively. Once again, the decrease in the average settlement amount is due principally to the higher percentage of non-malignancy claims settled during the first quarter 2009."


Also depressing is the lack of data in the report to tell readers where these nonmalignant claims are coming from and the nature of the supporting proofs. Are these claims from persons resident in the US or persons who live overseas? Are some of these claims from older claimants who perhaps really did inhale large amounts of Manville fibers, or are some these claims from younger claimants with x-rays read by physicians of dubious repute who have not yet been banned from submitting the reports ? Or, are these all valid claims supported by sound medicine and science ? The report does not shed light on the answers to the questions. Once again, bankruptcy- related proceedings prove themselves to be the antithesis of transparency, and the Manville Data apparently remains unavailable, thus making it harder for anyone to figure out the real facts about tens of millions of dollars that perhaps should instead be available to be paid to mesothelioma claimants.

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The point of this post is to explore, briefly, whether injunctive relief is warranted in chapter 11 cases for harm that may arise if deadlines can not be met that arise from self -created emergencies? Indeed, can a debtor be deemed to have the "clean hands" typically required for equitable relief if it has fouled up a business so badly that it will fail with so little money that it will be unable to pay even 1 cent per dollar of tort claims against it?

These questions of course are posed in the light of the recent Chrysler situation where the debtor and Fiat cited deadlines they had agreed to as the basis for obtaining rapid injunctive relief. Certainly there are some situations in which a deadline actually may be real, and perhaps Chrysler was such a case. But certainly there also is room to question self-imposed deadlines and/or the genuineness of alleged harms said to arise from agreed dates for agreed actions. In some bankruptcy cases, courts have rejected self-created deadlines as a basis for preliminary or permanent injunctive relief. This issue arose, for example, in an asbestos bankruptcy, In re Federal-Mogul Global, Inc., No. 01-10578 (D.N.J.). There, bankruptcy Judge Raymond T. Lyons was called on to consider a request for a preliminary injunction to block the litigation of underlying asbestos cases against a non-debtor. According to the debtor, a preliminary injunction was critical because the debtor had made a deal that required the injunction by a date certain as a condition of the contract.

Ultimately, Judge Lyons held that injunctive relief was inappropriate because the situation involved essentially a self-created emergency. The path that took Judge Lyon to that result is presented in a January 20, 2006 hearing transcript available here. The debtors opened the hearing on their motion by arguing that a preliminary injunction could be issued under section 105 of the Code in order to protect the possibility of later entering a section 524(g) injunction to enjoin a host of underlying asbestos cases. See Tr. at 87. Various counsel for asbestos plaintiffs' lawyers, on the other hand, opposed the injunction, arguing that their clients should not be deprived of their underlying tort trials. The lawyers making this argument included lawyers representing asbestos plaintiffs' firms SimmonsCooper; Seitz Van Ogtrop & Green; Levy Phillips & Konigsberg; David Lipman and Gebhardt & Smith. One of the plaintiffs' lawyers, Mr. Ruckdeschol of the David Lipman law firm in Florida, explicitly argued that the injunction should be denied because it was "an emergency of the creation of the drafters of the term sheet." Tr. at 115.

Ultimately, Judge Lyons accepted that argument, among others, and denied the request for injunctive relief. In ruling, Judge Lyons memorably referred to a self-created emergency depicted in the movie Blazing Saddles:

"Let me focus first of all upon irreparable harm. And one of the opponents here has characterized this as a self created irreparable harm. And this really reminds me of the scene from the movie Blazing Saddles where the sheriff played by Clevon Little is being hassled by a crowd and he's being threatened with physical violence. And he pulls out a gun and he holds it to his head. And he says, stand back or I'll shoot the sheriff. The debtor in this case has agreed to a deal in which they've undertaken to get a preliminary injunction and the other party to the deal has said, if I don't get this preliminary injunction I'm going to withdraw from the deal. This to me is a totally self created scenario for irreparable harm. "

It seems to me pretty hard to argue with the logic of Judge Lyons.

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The stay was lifted in a two page order available here. The experts at Scotus blog offered some interesting views on how much this order does or does not mean and noted in commentary that one appeal for certiorari has been filed with the Court. As to the issues for future product liability claimants, it seems fair to assume that collateral changes will arise in the future, as was successfully done in the later stages of the Agent Orange litigation by future claimants whose interests were not properly represented in the original Agent Orange proceedings. See Stephenson v. Dow Chemical, 273 F.3d 279 (2d Cir. 2001). Here, it seems difficult to realistically argue that future product liability claimants could be or were given meaningful or timely notice of the Chrysler proceedings, and there was no designated futures representative, much less an adequate future representative or a meaningful hearing on the issues specific to the future claimants. Time will tell what happens on direct appeal or later collateral attacks. But the Manville/Travelers opinion should be out withing the next three weeks and perhaps will include relevant rulings or clues.

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Akin Gump's SCOTUS blog provides expert Supreme Court commentary that includes a post explaining why why the stay issued by Justice Ginsberg may not have much substantive meaning. The so-called "consumer groups' " request for a stay is here. The papers cogently cite some of the caselaw recognizing the constitutional issue inherent in enjoining future claims. The stay request filed by Ms. Pascale, the asbestos claimant, may be found here.

The government responded on the TARP issues, but its brief does not address the arguments raised by product liability claimants. Chrysler responded in a brief that is here.

The Chrysler brief is noteworthy in two ways for tort issues. Overall, the message of the brief is a disturbing one for tort claimants because the basic premise is that Chrysler is so badly off and so mismanaged that there is not enough money left to pay tort claimants, and the remaining money should instead go to secured creditors without delay.

The general argument includes two parts. First, Chrysler argues that the tort victims lack are simply out of luck because there is, they say, no money left for them and so the claimants will not be harmed if the sale goes through. This argument is false because it ignores the relief the claimants seek - to limit the scope of the order of the bankruptcy court so that there is an open door to invoke state law to try to recover from the Buyer entity. Chrysler's argument is as follows:

"The unfortunate but unavoidable fact is that future tort claimants who will have claims against the Debtors based on vehicles manufactured by Chrysler simply have no value to be protected.
Accordingly, just as with the Funds, because the price paid by New CarCo Acquisition for the Fiat Sale exceeds Chrysler's liquidation value, creditors stand to gain more from the Fiat Sale than any other viable alternative. For both past and future tort claimants, their claims are valueless under either scenario. Accordingly, the "irreparable harm" that they claim will ensue in the absence of a stay is entirely the product of the economic collapse of Chrysler. It has nothing to do with the Fiat Sale or the Bankruptcy Court order approving it. The tort claimants' application for a stay should therefore be denied."

Second, Chrysler argues that an enormous bond must be posted in order to prosecute an appeal. The argument creates for the would-be appellants/objectors a problem reminiscent of the problems faced by oil companies and tobacco companies hit with large verdicts they sought to appeal. Specifically, the Chrysler brief argues:

"While the Funds' application for a stay should be denied for all of the reasons set forth above, even assuming that a stay were to be entered here it should thus be conditioned on the Funds posting a bond in at least the amount of $1.2 billion to protect Chrysler against damages that would be caused by a stay. See In re Calpine Corp., No. 05-60200, 2008 WL 207841, at * 6-7 (Bankr. S.D.N.Y. Jan. 24, 2008) (requiring bond of $900 million to cover "aggregate additional interest expense the Debtors could suffer if they were unable to close their existing exit financing"); ACC Bondholder Group v. Adelphia Commc'ns Corp. (In re Adelphia Commc'ns Corp.), 361 B.R. 337, 347 (S.D.N.Y 2007) (requiring supersedeas bond of $1.3 billion). (footnote omitted)

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This weekend, the Supreme Court has received stay motions regarding Chrysler that provide concrete examples of the importance of the issues the Court faces in the Manville/Travelers case regarding how far a bankruptcy court can go in issuing injunctive orders that limit the rights of third-parties, including so-called "future claimants." Indeed, some of the concerns raised this weekend illustrate the importance of due process issues raised in an amicus brief filed Manville/Travelers by a far-sighted group of bankruptcy law professors.

Specifically, the Court has received petitions seeking stays of the orders by Judge Gonzalez and by the 2d Circuit. The briefs are nicely collected and in general analyzed on the Scotus blog.

The current product liability claimants, and self-declared representatives of future product liability claimants, are of course complaining that their rights have been trampled by Chrsyler since no mony is being left behind to pay their claims, and the bankruptcy court has issued an order purporting to preclude claims against New Chrsyler. The latter of course takes away from the claiamnts their state law rights based on state law rules that would or may allow "successor liability" claims against New Chrsyler. At page 4 of their brief, they explain the rulings to data as follows:

"On June 1, 2009, the Bankruptcy Court for the Southern District of New York, Judge Arthur J. Gonzalez presiding, issued an opinion granting the relief sought in the sale motion. The opinion stated that tort claims and any potential successor liability claims are "interests in such property" that can be extinguished by § 363(f). Bankr. Op. at 42-43. The Court also held that the sale did not violate future claimants' due process rights because "notice of the proposed sale was published in newspapers with very wide circulation," id. at 43., citing Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 317 (1950), for the proposition that "publication of notice in such newspapers provides sufficient notice to claimants 'whose interests or whereabouts could not with due diligence be ascertained.'" In addition, the court stated that the interests of future tort claimants had been presented to the Court. Bankr. Op. at 43. The order signed by Judge Gonzalez authorized the sale of substantially all of Chrysler's assets free and clear of all liens, claims, interests, and encumbrances, "whether arising before or after the Petition date," "including all claims or rights based on any successor or transferee liability." Sale Order at 2-3; see also id. at 40, ¶ 35 (stating that New Chrysler "shall not have any successor, derivative or vicarious liabilities of any kind or character for any Claims, including, but not limited to, on any theory of successor or transferee liability, . . . whether known or unknown as of the Closing, now existing or
hereafter arising . . . .").

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An article in The Hill reports that product liability claimants are not happy with the developments in the Chrsyler and GM chapter 11 cases, so they are taking the issue to new fora - the Senate and the media. A similar article is in the WSJ blog known as Deal Journal. Specifically, they are upset that money is not being set aside to pay damages for pending product liability claims. Set out below is the relevant text from the article. The claims are said to be worth over $ 1 billion. One assumes the asbestos claimants are happy to let the car wreck claimants lead the charge on this issue. One also wonders who purports to speak for product liability claimants who have not yet been hurt, but inevitably will be hurt.

________________________________________________________

Lawyers cry foul over GM
By Ian Swanson
Posted: 06/02/09 08:19 PM [ET]
Consumer groups and trial lawyers are crying foul over the Obama administration's bankruptcy plans for General Motors and Chrysler.
Those plans would extinguish all ongoing auto accident claims that blame a death or serious injury on a defective GM or Chrysler vehicle.
"It's a raw deal for consumers," said Clarence Ditlow, executive director of the Center for Auto Safety.
Ditlow said the plans are unusual in that they would prevent anyone from bringing a future liability claim against GM or Chrysler if a car already purchased from either company is defective and results in an accident causing death or serious injury.
He and others said it was also unusual for no money to be set aside for liability claims. When companies producing asbestos went bankrupt, some funds were set aside for such claims, Ditlow said.
Pam Gilbert, of Cuneo Gilbert and LaDuca LLP in Washington, said Obama's auto task force should have looked out more for consumers and those with liability cases as it negotiated the complicated bankruptcy plans for both companies.
She notes that the administration is guaranteeing warranties issued by GM during its bankruptcy, meaning someone could get a broken exhaust pipe found to be defective fixed even while GM is in bankruptcy.
This means "they will fix the car, but if someone with a car suffers a serious injury or death because of a defection, we won't fix the person," Gilbert said.
Although a committee representing consumers and those with cases against the companies was involved in negotiations over Chrysler's and GM's bankruptcies, the group has received less attention compared to unions and those holding company debt.
That may change on Wednesday, when victims and families of victims with claims against the companies hold a press conference outside a Senate Commerce Committee hearing on GM's bankruptcy.
Those set to attend include the family of an ABC cameraman killed when the roof of his GM Suburban caved in during an accident, as well as the families of several children who suffered broken necks and blame faulty seatbelts, according to the Center for Justice and Democracy, a New York-based consumer group.
Three hundred plaintiffs seeking $1.25 billion in damages are affected, another attorney told The Wall Street Journal's 'Deal Journal' blog.
General Motors says claimants will have the opportunity to submit their claims and have them resolved "as provided by the Bankruptcy Code and other applicable law, both as to amount and priority."
"We won't discuss specific claims or the possible outcomes, as that will be determined by the court," it said in a statement.

But those claims must be made against the old GM company after bankruptcy, meaning people with the claims will need to stand in line with other unsecured creditors to seek compensation from the old company's remains, Gilbert said.
The new GM that arises out of bankruptcy will not be liable for those claims.
Ditlow blamed Obama's auto task force for the situation, which he said would ultimately add to other problems.
He cited the case of a young girl in New York left a quadriplegic from a car accident who has $500,000 in annual medical costs. That victim is likely to become a ward of the state, he said.

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The free version of the GM docket is located here. The case is assigned to Judge Gerber, who has been handling the Thompson-Hayward asbestos bankruptcy. An Am Law Daily article here provides a nice summary of the lawyers and parties, except that somehow it missed the lawyers for the asbestos claimants.

At least some of the lawyers for asbestos claimants show up in docket number 81, which is an appearance filed by Sander L. Esserman and Peter C. D'Apice of Stutzman, Bromberg, Esserman & Plifka as counsel for the Ad Hoc Committee of Asbestos Personal Injury Claimants. The ad hoc committee is said to consist, "at this time," of asbestos personal injury claimants represented by the law firms commonly known as 1) Waters & Krause; 2) SimmonsCooper, 3) Weitz & Luxenburg, and 4) Brayton Purcell. In addition, Stephen Kazan of Kazan, McClain, Lyons, Greenwood & Harley is listed as an ex officio member of the committee.

In addition, docket number 114 is an appearance for asbestos claimants represented by Kelley & Ferraro.

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The new opinion in Skinner is good news for opponents of the manner in which asbestos bankruptcies are currently conducted. Judge M. Bruce McCullough, a bankruptcy judge in the Western District of Pennsylvania, has issued a May 26, 2009, opinion finding the Skinner asbestos bankruptcy collusive and in bad faith. The order goes on to put the estate under the control of a court-appointed trustee, and converts the case to a Chapter 7 liquidation. The opinion is here.

The opinion is noteworthy for multiple reasons. For one, the opinion uses relatively harsh words regarding the lack of good faith in settlement of the underlying asbestos claims. Second, the Court concluded that the Chapter 11 plan and the underlying asbestos settlements were not in good faith. The Court pointed to various factors for this conclusion, and the opinion treats one of them as particularly telling. Specifically, the plan called for the debtor to receive 20% of insurance proceeds paid out to settle underlying claims, thus leaving the debtor with an incentive to settle claims instead of defending them, to the detriment of the insurers. The following text is taken directly from the opinion, but footnotes are omitted:

"The Asbestos Claims Settlement is not reasonable for several reasons. First, it is indisputable that no payment has ever been made by any of the Insurers on behalf of the Debtor to any of the Asbestos Claimants vis-a-vis the Asbestos Claims, notwithstanding that such claims have existed for roughly twenty (20) years. Such fact is strong evidence as to the futility of such claims, and it makes little, indeed no, sense to settle claims that have thus far been so overwhelmingly unsuccessful. Second, most, if not practically all, of the Asbestos Claims were administratively dismissed pre-petition by the U.S. District Court for the Eastern District of Pennsylvania, which court presides over such claims given that they were filed on such court's Asbestos Products Liability Multi-District Litigation (MDL) docket. Such fact also serves to substantiate that such claims are not very strong, so that, once again, it makes little, if not any, sense for such claims to be settled. Finally, there is really no valid reason for the Debtor to even care if the Asbestos Claims get settled given that (a) the Debtor is defunct (i.e., out of business), (b) the Debtor will never again engage in business, (c) the Debtor is in bankruptcy, (d) no funds practically exist in the Debtor's bankruptcy estate in any event to pay on any judgment that the Asbestos Claimants might obtain in excess of the Debtor's insurance (hereafter referred to as an "excess judgment"), and (e) any excess judgment obtained would, therefore, be practically worthless. In light of the foregoing undisputed facts, it makes absolutely no sense for the Debtor to settle any of the Asbestos Claims absent the consent of the Insurers, and settlement without such consent (as is the case with respect to the Asbestos Claims Settlement), the Court holds, is thus per se unreasonable."

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PACER is a great resource, and I am one of the many who are delighted it exists. But the absence of transparency in chapter 11 cases causes me to join with the numerous critics of PACER's ongoing flaws, many of which are well described and collected by Tim Lee at ars technica in an April 2009 online article. I also join with policy groups at Princeton and elsewhere which Mr. Lee identifies as arguing for the government to get out of the way with respect to matters of public interest and let the private sector provide information dissemination when the government does not handle dissemination well.

One of the flaws in PACER was particularly apparent this past week in the Chrysler bankruptcy, and also is a flaw of most chapter 11 proceedings. That flaw is the absence of quickly and freely available transcripts of bankruptcy court hearings in chapter 11 cases. The absence of transparency is particurly inappropriate in a case like Chrysler that is of great interest to hundreds of thousands or millions of people and businesses. The absence of immediate public hearing transcripts is especially ironic when the Obama administration has frequently and rightly announced that transparency in government is essential. One would think that policy could and should be carried over to major chapter 11 cases in general, and especially to a case the President has declared is of tremendous public importance.

What is the situation with respect to hearing transcripts? In PACER, the docket for this and most every other chapter 11 case is marked to indicate that a particular day's hearing transcript will not become publicly available for 90 days to allow time for redaction of personal information.

Why are transcripts not immediately available? An online Powerpoint from the federal courts explains that the delay in public access to transcripts is a function of judicial efforts to comply with a federal statute intended protect against disclosure of social security numbers, bank account numbers, and other similar personal information. Here is an example policy from one of the federal courts. The gist of the policy is that transcripts are embargoed from the online public docket until there has been an opportunity for parties to the case to request redaction of personal information, with the entire cumbersome process given an absurdly long 90 days. That extreme amount of delay is especially ironic when Chrysler has time and again announced that it intends to be in and out of chapter 11 in less than 90 days. A cynic night suggest that many of the players involved in chapter 11 cases do not want real transparency

Whatever the utility of the 90 days of delay policy may be in Chapter 7 cases filed by individuals, the policy plainly is irrelevant and counterproductive when applied to a Chapter 11 cases, especially ones of national significance. Worse yet, the absence of transcripts promotes secrecy and makes it harder for academics and other disinterested individuals to monitor government (court) actions that amy have a profound effect on millions of individuals. Indeed, as S. Todd Brown points out in his great 2008 law review article on asbestos bankruptcies, transparency is supposed to be paramount in bankruptcy cases, but is woefully lacking in reality:

"Throughout the history of bankruptcy law, transparency has been viewed as an essential element in maintaining confidence in the system. Although "[t]here is a strong presumption and public policy in favor of public access to court records" generally, "[t]he public interest in openness of court proceedings is at its zenith when issues concerning the integrity and transparency of bankruptcy court proceedings are involved[.]" Of course, transparency is not only a question of access to public records but also the open disclosure of critical information in those records. As Judge Bohm recently noted, "in order for the bankruptcy system to function . . . every entity involved in a bankruptcy proceeding must fully disclose all relevant facts." This mirrors the First Circuit's emphasis on full disclosure by debtors in bankruptcy:

The [bankruptcy] statutes are designed to insure that complete, truthful, and reliable information is put forward at the outset of the proceedings, so that decisions can be made by the parties in interest based on fact rather than fiction. As we have stated, the successful functioning of the bankruptcy act hinges both upon the bankrupt's veracity and his willingness to make full disclosure. Neither the trustee nor the creditors should be required to engage in a laborious tug-of-war to drag the simple truth into the glare of daylight. In short, the integrity of the bankruptcy process demands transparency both in disclosure and open public records." (footnotes omitted)

So, how to make transcripts available quickly and cause real transparency for chapter 11 cases? The easy answer of course is for the federal courts to implement an exception to the general rule for redaction, and to permit/require automatic and more or less instantaneous release of hearing transcripts in Chapter 11 cases through either PACER or private information sources not unlike the "news pool feeds" used for other public matters. This exception and rule could and should apply to, for example, any chapter 11 cases involving any publicly-traded company or any bankrupcty estate with assets of over $ XXX. Hearings in cases of real magnitude are not spent talking about social security numbers or bank account numbers, and so much-needed sunshine should be applied to the hearings.

Another obstacle might be put up by court reporters complaining that making free transcripts available online will deprive them of income. The easy answer to that problem is to require the bankruptcy estate to pay the relevant court reporter a fee that provides ample returns for their work, but without a windfall. Large bankruptcy estates already pay tens of millions of dollars in fees to lawyers and other professionals, so paying court reporter fees should be a non issue.

As a partial fix for the problem, the court's website has a page mentioning that the Chrysler case is being used as a test for making available through Pacer online audio recordings of the proceedings. That's a good idea, and certainly worth continuing. But, that's not a real answer nor is it an effective means for causing effective transparency. Why? Because audio transcripts are far less useful than our paper transcripts. Why is audio far less useful? Because an audio transcript takes many hours to listen through in contrast to the ability to quickly scan through a transcript and/or run boolean word searches against a searchable transcript to find the name of the party of interest or the legal issue of interest.

In sum, transparency in chapter 11 cases is deeply impeded by the needlessly overbroad rules delaying - for 90 days - access to hearing transcripts from chapter 11 cases. The Obama Administration is rightly anxious to achieve transparency in government, and should act to fix the problem quickly. The problem could be fixed for the Chrysler case in about 5 minutes by asking Judge Gonzalez to issue an order requiring the estate to immediately post in PACER complete, searchable hearing transcripts. For the rest of the bankruptcy court system, the same sort of order can and should be issued in all chapter 11 cases involving public companies or section 524(g) of the bankruptcy code.

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A decision is expected tomorrow after the briefs and argument flowied all last week in Chrysler. In a nutshell, the battle seems to boil down to how much the sale order will or will not do to give the buyer entity the future comfort and protection provided by a federal bankrupcty court order/injunction limiting future claims. For example, will the buyer entitiy obtain the injunctive protection it wants to protect itself from the expenses of product laibility claims arising from products sold by " old Chrsyler"? If so, that order will completely contradict state tort law rules that allow successor liability to be imposed on successor entities that assume control of and the financial benfeits of a prior manufacturing operation that it is out of existences and/or insolvent. Likewise, will "old" and "new" Chrysler " obtain the order they want to enjoin future fraudulent conveyance claims asseting that too little money has been left behind for creditors?


Various objectors have weighed in on the issues, and oppose an order granting the buyer protection against future product liability claims. The objectors include all product liability claimants. Another one is the State of Connecticut. It's opening statement, docket # 2567, builds from its objection. The following is the text of the obecjtionn, but with footnotes omitted and emphasis added:



OPENING STATEMENT OF THE STATE OF CONNECTICUT

The State of Connecticut (the "State") by Richard Blumenthal, Attorney General (the "Attorney General"), and through its undersigned counsel, respectfully submits this opening statement with respect to its Joinder, Limited Objection, and Reservation of Rights filed May 23, 2009 [Docket No 1976] (the "Objection").

This court should not enter any order depriving purchasers of Chrysler vehicles of legal rights to be compensated for death or serious injuries caused by defects in Chrysler products. Any such order would be unfair, in violation of due process, and inconsistent with the public assertions by the President of the United States and the Debtor that consumers who buy Chrysler products have no cause for concern.


The State has objected to the Debtors' motion for an Order authorizing the sale of substantially all of the Debtors' assets free and clear of liens, claims, interests and encumbrances
(the "Sale"). This objection raises two concerns: (1) the proposed rejection of product liability claims for vehicles sold pre-closing; and (2) the proposed rejection of all future claims based on theories of transferee or successor liability for vehicles sold pre-closing.

On the first point, the State joins in the Objection of The Ad Hoc Committee of Consumer-Victims of Chrysler LLC (the "Ad Hoc Committee") in its Limited Objection to Motion for an Order Authorizing the Sale of Substantially all of the Debtors' Assets Free and Clear of Liens, Claims, Interests and Encumbrances and Reservation of Rights of the Ad Hoc Committee of Consumer-Victims of Chrysler LLC [doc. id 1192] (the "Consumer Objection"). As the Ad Hoc Committee argues in the Consumer Objection, and the State argues by reference in its Objection, Section 363(f) simply does not permit the sale free and clear of "claims," even though it does permit the sale free and clear of "liens."

With respect to the State's second issue, due process principles do not allow the sale to New Chrysler "free and clear" of future, presently unknown claims. Fiat's argument that the "the number and variety of objections that have been filed demonstrates that notice of the proposed sale has been disseminated widely," (Docket No. 2111 at 11) is unfounded. Consumers who are unaware that they may have product liability claims in the future could not possibly recognize the need to review or respond to a notice about those not-yet-existing claims now.

This situation cannot be what the Department of the Treasury and the United States government intended when they provided substantial financial assistance to the Debtors. It also appears to be directly at odds with President Obama's statement on March 30, 2009:
But just in case there's still nagging doubts, let me say it as plainly as I can: If you buy a car from Chrysler or General Motors, you will be able to get your car serviced and repaired, just like always. Your warranty will be safe. In fact, it will be safer than it's ever been, because starting today, the United States government will stand behind your warranty.

Remarks by the President on the American Automotive Industry, March 30, 2009.


Presumably, consumers presently purchasing new Chrysler vehicles are not being informed that they may have no claim under product liability law for any harm they may suffer as the result of a defective Chrysler vehicle. Thus, Fiat's argument that the publicity of the proposed sale satisfies due process is unavailing. Unknowing consumers are still buying Chrysler vehicles with no indication that future injuries caused by a defect in those vehicles will not be a liability of New Chrysler. Injuries caused by automobile defects can be devastating. The medical bills, loss of income, severe disability, or most tragically, loss of life are difficult enough to bear. This court should block the Debtors from erecting another unconscionable burden -- litigating whether this Court has the authority to approve the Sale free and clear of product liability claims. New Chrysler should be clearly liable under a theory of successor liability, among others.

Consumers purchasing Chrysler products today do not know that they may not have the legal rights enjoyed by purchasers of other cars concerning life threatening defects. Congress cannot have intended to eviscerate such rights when it enacted Section 363, nor what the Treasury had in mind when it loaned the Debtors billions of taxpayer dollars. Accordingly, the State urges this Court, if it is inclined to allow the Sale, to do so subject to the retention of product liability claims.
Dated: Hartford, Connecticut
May 26, 2009
STATE OF CONNECTICUT
RICHARD BLUMENTHAL,
ATTORNEY GENERAL
By: /s/ Denise Mondell
Denise Mondell (DM-8434)
Matthew F. Fitzsimmons
Assistant Attorneys General
Office of the Attorney General
State of Connecticut
55 Elm Street
Hartford, CT 06106
Phone: (860) 808-5150
Fax: (860) 808-5383

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S. Todd Brown of Temple University has written an insightful law review article desribing in detail Congress' incredibly costly error in creating the bankruptcy code section (524(g)) with terms that have turned out to give a very small number of plaintiff's law firms "veto power" over asbestos-related chapter 11 plans. Strengths of the article include crisp writing, a great collection and distillation of relevant facts not well known to outsiders, cogent legal cites, and a logical organizational sequence that adds to the article's persuasive impact. The article is titled: Section 524 (g) Without Compromise: Voting Rights and the Asbestos Bankruptcy Paradox (Colum. Bus. L. Rev. (forthcoming 2008). The article is available on SSRN. Apparently the article is being published at 2008 Colum. Bus. L. Rev. # 3, at 841 but that link only takes you to an image of the cover of the law review.

I'm trying to figure out why the article has not been more widely publicized to date. Indeed, I found the article by accident while looking at results from a Google search for the cite for another article on section 524(g). When I Googled the article, all I found it mentioned in were mundane collections of lists of law review articles, and a slightly more extensive post on the Mass Tort Litigation Blog, with the post showing the article title and the abstract.

Various quotes and points from the article will soon show up here, but don't wait - go get and read the article if you are involved in asbestos litigation in particular or mass tort claiming in general.

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The objection lodged in the Chrysler proceedings by a representative for asbestos plaintiffs, Ms. Pascale, once again illustrates the importance of the issues to be decided in the Manville/Travelers case awaiting a US Supreme Court decision on the scope of bankruptcy court jurisdiction. Specifically, paragraph 8 of the pleading sets out the following objection regarding the scope of injunctions that may be issued by they Chrysler bankruptcy court:

[5] "The Sale Transaction, including any affiliated agreements and
proposals, provides for releases of, or injunctions in favor of,
non-Debtor third parties, outside of a plan of reorganization and
to the detriment of unsecured creditors as a whole and tort
claimants in particular."

Full Text of All Objections by Ms. Pascale:

Less than self-evident on the docket, the pleading is docket number 1175, filed May 19. The objection in itself is quite brief as it consists of only nine numbered paragraphs. Ms. Pascale is identified in paragraphs 5 and 6 as the widow of an individual who allegedly died from mesothelioma, with a wrongful death action pending in California in Los Angeles as case number BC 345910, and a trial date of June 15, 2009.

In paragraph 8 of the objection, Ms. Pascale sets out the following six objections (but with numbers added by me for ease of reference):

Mrs. Pascale objects to the 363 Motion on the following grounds:


1) The 363 Motion purports to grant successor liability protections
to New Chrysler from asbestos personal injury and wrongful
death claims, but the 363 Motion fails to comply with the
statutory requirements of 11 U.S.C. § 524(g).


2) As currently structured, sale of substantially all of Chrysler's
assets constitutes an impermissible sub rosa plan of
reorganization and includes various releases, assumptions and
discriminatory treatment which would be prohibited in a plan.


3) The 363 Motion does not specify what will happen to tort claims
like Mrs. Pascale's. Such claims are not listed among the
Assumed Liabilities that Fiat will assume. The Debtors should
be required to explain how tort claims will be treated and what
assets, if any, will be available for payment of tort claims if the
Sale Transaction is approved and consummated.


4) The Sale Transaction, including any related ancillary
agreements, as currently structured, allocates proceeds and
consideration of the sale disproportionately in favor of certain
unsecured creditors to the detriment of other, similarly situated
unsecured creditors, including Mrs. Pascale, and is not in the
best interests of unsecured creditors as a whole.


5) The Sale Transaction, including any affiliated agreements and
proposals, provides for releases of, or injunctions in favor of,
non-Debtor third parties, outside of a plan of reorganization and
to the detriment of unsecured creditors as a whole and tort
claimants in particular.


6) Chrysler has not met and cannot meet its burden to
demonstrate that the sale of substantially all of its assets as
contemplated by the 363 Motion satisfies all of the requirements
of 11 U.S.C. § 363 and General Order M-331 of this Court.




Naming and Politics in Chapter 11 Cases: It's interesting to watch the politics and gamesmanship in bankruptcy court. As previously covered here on this blog, the asbestos objector constituency was officially recognized by The Office of the US Trustee and given a seat on the Official Committee of Unsecured Creditors as shown at docket number 366. Moreover, Chrysler's asbestos issues are no secret to analysts or others, and finally started being mentioned in public articles around May 6.

One might then think that Ms. Pascale might readily identify use the title of her pleading to readily identify the constituency she represents. But, the title of the objection does not on its face reveal the reality that the objection is being asserted by an asbestos claimant, and instead bears the ponderous title:


OBJECTION OF UNSECURED CREDITORS COMMITTEE MEMBER,
PATRICIA PASCALE, TO MOTION OF DEBTORS AND DEBTORS IN
POSSESSION, PURSUANT TO SECTIONS 105, 363 AND 365 OF THE
BANKRUPTCY CODE AND BANKRUPTCY RULES 2002, 6004 AND 6006,
FOR (I) AN ORDER (A) APPROVING BIDDING PROCEDURES AND
BIDDER PROTECTIONS FOR THE SALE OF SUBSTANTIALLY ALL OF
THE DEBTORS' ASSETS AND (B) SCHEDULING A FINAL SALE
HEARING AND APPROVING THE FORM AND MANNER OF NOTICE
THEREON; AND (II) AN ORDER (A) AUTHORIZING THE SALE OF
SUBSTANTIALLY ALL OF THE DEBTORS' ASSETS, FREE AND CLEAR
OF LIENS, CLAIMS, INTERESTS AND ENCUMBRANCES, (B)
AUTHORIZING THE ASSUMPTION AND ASSIGNMENT OF CERTAIN
EXECUTORY CONTRACTS AND UNEXPIRED LEASES IN CONNECTION
THEREWITH AND RELATED PROCEDURES, AND
(C) GRANTING CERTAIN RELATED RELIEF

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Please see the prior post for information on why this case matters for mass tort lawyers concerned about the scope of the injunctions in asbestos bankruptcy cases.

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A comment/question was posed under yesterday's post about the asbestos issues bubbling up in the Chrsyler case. The question is whether the Chrsyler bankruptcy would cause a stay of all underlying asbestos cases as against all defendants. The question is interesting and again underscores the importance of what the US Supreme Court has to say in Travelers/Manville about the scope of bankruptcy court jurisdiction. The short answer is that the bankruptcy code's automatic stay provisions do not stay cases against co-defendants, and adverse existing precedent would have to be overcome to obtain a stay for all defendants based on "related to" jurisdiction in the bankruptcy court.

The "related to" precedent arises from Federal-Mogul's chapter 11 petition filed October 1, 2001. Soon thereafter, some car makers sought to use the FM proceedings as the forum to hold a global Daubert hearing on whether friction products can cause asbestos-related disease. Among other things, there were arguments that the bankruptcy court could exert "related to" jurisdiction based on express or implied indemnity claims that might be asserted against FM by other entities involved with friction products, and various arguments about the inter-related nature of the friction product claims. The asbestos plaintiff's bar vigorously opposed that approach.

Judge Wolin denied the effort, concluding that he lacked jurisdiction. The 3rd Circuit declined to reverse him based on issues regarding its appellate jurisdiction. For a complete synopsis of the issues and rulings from the Crowell & Moring lawyers who have for years represented insurers in asbestos bankrutcies, go here. The 3rd Circuit's opinion, In re Federal-Mogul Global, Inc., 300 F.3d 368 (3rd Cir. 2002) provides the following brief synopsis:

" In re Federal-Mogul Global, Inc., No. 01-10587, 2002 Bankr.LEXIS 105, *4-5 (Bankr.D.Del. Feb. 8, 2002) (hereinafter, Feb. 8 Order). The District Court's written opinion supplementing the order was issued on February 15, 2002. In re Federal-Mogul Global, Inc., No. 01-10578 et al., slip op. (Bankr.D.Del. Feb. 15, 2002) (hereinafter, Feb. 15 Op.).

The District Court held that it lacked subject-matter jurisdiction because the claims against the Friction Product Defendants were not "related to" the Federal-Mogul bankruptcy proceedings. The court found it unlikely that "Congress ... intended that the bankruptcy of a single player [in a multi-player industry] would have automatic, nation-wide impact in which every manufacturer and distributor and all tens of thousands of injured parties are concentrated in a single reorganization proceeding." Feb. 15 Op. at 16. Specifically, the District Court found that under this court's influential decision in Pacor, Inc. v. Higgins (In re Pacor), 743 F.2d 984 (3d Cir.1984), "related-to bankruptcy jurisdiction [does] not extend to a dispute between non-debtors unless that dispute, by itself, creates at least the logical possibility that the estate will be affected." Id. at 17.

The District Court noted that Pacor made clear that there is no "related to" jurisdiction over a personal injury claim *376 against a non-debtor "without the filing and adjudication of a separate claim for indemnification" against the debtor. Id. at 18. Further, the District Court observed that "cases since Pacor have failed to endorse the proposition that any contract of indemnification will support an extension of related-to jurisdiction." Id. at 22 (emphasis in original)."

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Update: Yet another article mentions asbestos and provides some big picture facts and thinking. In states, among other things:

"The 60 days projected by the President at an April 30 press conference announcing the automaker's bankruptcy only applies to a sale of Chrysler's best assets to a new entity, said the official, who can't be identified because the matter is confidential. Afterward, creditors would fight over unwanted factories and other assets to recover money, lawyers said.

"The unsold assets and liabilities may take years to sort out due to the complexities of resolving thousands of commercial, tort, future asbestos, dealership and employee claims," said Dewey & LeBoeuf LLP partner Martin Bienenstock, who has advised General Motors Corp. and Chrysler Financial on restructuring.

The bulk of assets left in the old Chrysler will be eight factories, valued by Chrysler at $2.3 billion. Those with claims against them include the U.S. government, provider of a $4.5 billion bankruptcy loan, and lenders with an unpaid balance of $4.9 billion on a secured loan."

_______________________________________________________________
Popular press articles are now starting to mention the reality that the bankruptcy court at some point will have to sort out Chrysler's legacy liability issues, including asbestos claims. A prior post here pointed out that the asbestos plaintiff's bar has a seat on the unsecured creditors' committee and that plaintiff's firm SimmonsCooper filed an appearance in the case early on to protect the interests of its asbestos clients. One would assume that before the May 20 hearing, the unsecured creditor's committee will have something to say about the distribution of the asset sale proceeds and the scope of the order and injunctive terms related to the sale. For example, will the final order regarding the sale include language purporting to immunize Chrysler and Fiat from facing future claims that the asset sale is a conveyance intended to impair collection of claims by unsecured creditors, including tort claimants with non-asbestos claims and those holding asbestos claims ?

Chrysler's legacy liability issues illustrate the importance of the issues presently pending before the US Supreme Court in the Travelers/Manville case. There, the Court has been asked to decide just how far a bankruptcy court can go in enjoining current and future claims, a topic mentioned in this prior post.

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Time to put in one place some answers to questions I'm repeatedly asked or ask myself. The list will expand over time.



1) Where are Updated Lists of Asbestos Bankruptcy Cases? Believe it or not, you can find online a very useful set of lists of asbestos bankruptcy cases, including citations to published opinions in the cases. This link will take you to this set of lists thoughtfully maintained in public view by a team of bright lawyers at Crowell & Moring. The team is led by Mark Plevin, and represents insurers in many asbestos bankruptcy cases. They kindly provide periodic updates to the lists and post them online. Just go to this page of the Crowell web site and choose the list you want.



2) Where Are Periodic Commentaries Summarizing the Status of Asbestos Bankruptcies ? The Crowell & Moring team also has published a series of five articles with expert commentary on the status of and key issues in asbestos bankruptcy cases. The articles are titled "Where Are They Now" and can be found at the same page as the bankruptcy lists. Reading these summaries provides a great, manageable lesson in how the cases and issues have evolved.



3) How Much Money Do the Asbestos Trusts Have ? This answer is harder because of course the amount keeps changing. As of November, 2006, the answer was: about $ 30 billion. That answer is set out in an excellent article by economists Charlie Bates and Charlie Mullin who lead an expert team at economic consulting firm Bates White. They know the asbestos bankruptcy topic quite thoroughly. The article's title is "Having Your Tort and Eating it Too?"

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Reuter's picked up a Deal article recounting the long strange trip known as the Congoleoum asbestos bankruptcy. It's well worth reading for those who care about mass tort bankruptcies.

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The importance of the Manville/Travelers scope of jurisdiction issues will be going up if Chrysler proceeds with the expected Chapter 11 petition.

During oral argument, Justice Roberts asked, hypothetically, if the bankruptcy court could enjoin car accident claims against Travelers if such a deal were made as part of settlement of insurance coverage issues. Other justices raised questions about whether claimants would be entitled to notice before their claims are enjoined. In Chrysler, scope of injunction and notice issues could be significant, especially if assets are quickly sold off, leaving a theoretically finite set of assets to pay whatever future claims may be brought against Chrysler. It's too early to spend much time on the all the possibilities, but here are a couple of examples:

May the bankruptcy court enjoin state law tort or contract claims against Chrysler entities not in bankruptcy, if there are any? Would it matter if the injunction is part of a settlement of claims between Chrysler entities?

May the bankruptcy court enjoin state law tort claims against suppliers to Chrysler of allegedly defective products ? What about an injunction in favor of insurers of parts suppliers to Chrysler?

To which current or potential future claimants should notice be given regarding the bankruptcy or the apparently impending asset sale ?

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Lawyers are starting to react publicly to the Illinois Supreme Court's ruling on the Lipke issue. One article is pasted below, and quotes a well-respected and veteran Chicago lawyer, Ed McCambridge, 'as saying:

'It's probably the biggest asbestos opinion in the history of the state,'' McCambridge said. ''It is clearly going to have a huge effect on how cases will be tried in this state."

Ed is more than correct. Indeed, the opinion has national implications.

Why? Under (misinterpretations) of the Lipke case decided decades ago, the absurd result was that the last few defendants left in cases in Illinois were under enormous pressure to settle. Why? Because Lipke was construed to say that the jury could only hear evidence of the alleged exposure to the products of the defendant(s) in trial. For example, assume a plaintiff with mesothelioma who spent 10 years working at the old Manville plant in Waukegan, a suburb north of Chicago. Assume he spent his 10 years shoveling the especially lethal mphibole asbestos fibers that Manvilleused in some of its products. Assume also that outside of work, he once changed car brakes and once changed a gasket on a pump. Under Lipke as misconstrued, the plaintiff could take the brake lining maker and gasket maker to trial, but the defendants could not put in evidence to prove up his work at the Manville work as the sole cause of his mesothelioma. Does that make for an absurd trial and an absurd result? You bet, but trial judges in Illinois applied the law that way for decades, thus making Illinois a favored forum for plaintiff's to bring cases against defendants with little or no actual role in causing mesothelioma.

As Ed said, the implications are huge for the trial of cases in Illinois. The implication also are national because "Illinois values" should now fall for many defendants. That matters nationally because asbestos bankruptcy "liability estimates" have for years been artificially inflated by "Illinois values." Indeed, I was personally involved in proving in a bankruptcy that the settlement values for one defendant were 8x higher in Illinois than anywhere else in the nation.
So, so long as defendants and insurers do not blow this win with bad trial tactics, Illinois values should drop. The ruling also will be germane to choice of law issues, a topic of increasing importance in asbestos litigation.

Two other observations. One wonders why it took the Illinois Supreme Court almost tow years to issue this fairly simple opinion. One also wonders why it took insurers and defendants decades to take up an asbestos verdict and get Lipke reversed. During those years, literally billions of dollars were paid out for asbestos claims filed in Illinois.


http://www.chicagolawbulletin.com/news/get_story_text.cfm?id=100003346&SessionID=2516884

Ruling aids exposure defense on asbestos

By Bethany Krajelis Law Bulletin staff writerSPRINGFIELD -- The defendant in an asbestos case should not have been barred from presenting evidence of the decedent's other exposures to the material, the Illinois Supreme Court held Thursday.

In a 5-1 ruling, the high court remanded the matter of Sally Nolan v. Weil-McLain to the Circuit Court for a new trial and overturned two appellate decisions, saying the lower courts had misinterpreted a rule created in Lipke v. Celotex Corp., 153 Ill. App. 3d (1987), to prevent defendants from introducing evidence of other exposure.

Justice Robert R.Thomas did not take part in the decision and, while Justice Thomas L. Kilbride agreed with the majority that it was an error to exclude such evidence, he disagreed that the error requires a new trial.

Nolan sued 12 defendants, including Weil-McLain, in 2001, claiming that her husband's death from mesothelioma was caused from asbestos exposure at work. The other defendants settled, leaving Weil-McLain, a manufactorer of cast-iron boilers, the only defendant at trial.
A Vermilion County jury awarded Nolan $2.3 million in 2004. The 4th District Appellate Court affirmed the lower court's ruling, relying on Lipke, Kochan v. Owens-Corning Fiberglass Corp., 242 Ill. App. 3d (1993), and Spain v. Owens-Corning Fiberglass Corp., 304 Ill. App. 3d (1999).
The Lipke court acknowledged there can be more than one proximate cause of an injury, but noted that ''the fact that plaintiff used a variety of asbestos products does not relieve defendant of liability for his injuries. Evidence of such exposure is not relevant.''
In a 26-page opinion on Nolan's claim written by Justice Charles E. Freeman, the court agreed with Weil-McClain's argument that the trial court misinteprepated Lipke in barring the defense from preventing evidence of other sources of asbestos exposure that Clarence Nolan had encountered.
''Lipke simply determined that evidence of the plaintiff's other exposures was not relevant to the specific defense raised, i.e., that the plaintiff did not have an asbestos-related disease,'' Freeman wrote. ''In the matter at bar, however, defendant wishes to offer evidence of decedent's other exposures for different purposes: to contest causation through the use of the sole proximate cause defense, which was not raised by the Lipke defendant.''
Because the Kochan court extended the Lipke rule to say that evidence of other exposure is always irrelevant, which the justices acknowledged basically makes it impossible for asbestos defendants to argue a sole proximate cause defense, the high court overruled that portion of the Kochan decision.
In overruling Kochan and Spain, the high court also relied on its decisions in Thacker v. UNR Industries Inc., 151 Ill. 2d (1992), and Leonardi v. Loyola University of Chicago, 168 Ill. 2d (1995).
And while Kilbride agreed with most of the majority opinion, he said in his dissent that the error of not allowing evidence of other exposure at trial does not merit a new trial. He noted that other evidence that was admitted did provide Weil-McLain grounds for a sole proximate cause defense.
''[A] new trial is not warranted because Weil-McLain was able to receive a fair, albeit not perfect, trial in spite of the trial court's ruling,'' Kilbride wrote.
Nolan's attorney, David A. Novoselsky, said Kilbride's dissent says it all.
''In my opinion, the defendant got a fair trial here,'' Novoselsky said. ''This jury heard all of the evidence. It's as simple as that.''

Novoselsky said he plans to recommend that his client petition for a rehearing before the high court. He said he would ask the justices to consider Kilbride's dissent.

Richard P. Godfrey, who represented Weil-McLain at oral argument, said he was pleased with Thursday's opinion and believes the ruling will have an impact on a number of other cases.

Edward J. McCambridge, the national coordinating counsel for Weil-McLain, said Thursday's opinion is not only huge for the company, but for asbestos litigation in general.
''It's probably the biggest asbestos opinion in the history of the state,'' McCambridge said. ''It is clearly going to have a huge effect on how cases will be tried in this state.''

Edward Murnane, president of the Illinois Civil Justice League, and Gregory L. Cochran, the president of the Illinois Association of Defense Trial Counsel, both said they welcome the long-awaited decision with open arms.

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Wonk 411 posted a comment regarding my April 7 post on GIT. You can read the full comment under the post.

In essence, Wonk 411 trys to justify the GIT result by suggesting that silica exposures are different than asbestos exposures because some silica exposures may be ongoing. Wonk is right that silica exposures may be ongoing. That is, however, a distinction without a difference for at least two reasons. First, Wonk assumes that asbestos exposures are over, but in fact they are ongoing for many products. Second, the theory for enjoining claims is to protect a company against a judgment that might hurt its finances. But that risk of an adverse judgment also arises from new silica exposures as it does from old silica exposures. The risk of adverse judgments also arises if a company issues misleading SEC filings or engages in fraud, but certainly no one would suggest that a bankruptcy court would or should immunize it from being sued. The same risk also arises from suits by state Attorney Generals, which is why they filed an amicus brief discussed in today's post. So, I appreciate Wonk taking the time to comment, but I'd say the comment is wrong. See below as to ongoing asbestos exposures, a subject I know way too well from having litigated asbestos-in-buildings cases for 9 years for GAF and then WR Grace.

In fact, asbestos exposures are or may still be occurring today. How and why is that? Because many asbestos-containing products are still in place, and some of the products may give off fibers if disturbed under certain conditions. Thus, the buidling materials sold by various bankrupt companies remain in place in buildings. For example, W.R. Grace's asbestos-containing Monokote fireproofing is still installed on the beams of many buildings for fire protection. Innumerable feet of wallboard still are joined by joint compounds containing asbestos. Millions of feet of asbestos-containing pipe-covering are still installed in pipe chases and boiler rooms around the nation. Millions of pieces of Congoluem's allegedly dangerous floor tiles also are still in place in hospitals and schools. Want proof? Look at the claims in asbestos bankruptcies that are filed by Dan Speights' law firm as counsel for building owners with asbestos-products still in place. They want lots money to repair or replace the materials even though claimants long ago stopped bringing the claim in the tort system because they could not reliably win the claims. You also clould read Judge Fitzgerald's opinion denigrating the viability of Zonolite insulation claims. You can see the opinion here. The opinion (correctly) concluded as follows:


"Claimants were required to show a disputed material fact to establish that ZAI poses an unreasonable risk of harm. Claimants failed to provide any epidemiological evidence or any risk assessment. They have shown no material fact in dispute. Claimants cited to the OSHA standard as an applicable regulatory yardstick, but failed to account for the lifetime exposure differences between the workplace and a home attic insulated with ZAI. In addition, the evidence established that the risk of exposure from ZAI in the home is less than that of dying in a bicycle accident, by drowning, or from food poisoning.

The various Daubert objections have been addressed in this opinion and will be incorporated into an order.

Without any scientifically reliable evidence indicating that ZAI poses an unreasonable risk of harm, this court must grant Grace's motion for summary judgment in part and deny claimants' motion for summary judgment in part, limited to the threshold issue of unreasonable risk of harm as it pertains to all proofs of claim. While the determination made herein may prove to be fatal to the property damage claims, several different theories of liability were proposed in the individual proofs of claim and may still need to be addressed..... "

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This post follows up on the amicus brief mentioned in yesterday's post regarding the GIT asbestos chapter 11 case that is set for oral argument on May 20 in the Third Circuit.

19 state AGs filed an amicus brief in the GIT case to urge the 3rd Circuit to block the efforts of the debtor and the asbestos and silica plaintiff's bar to use bankruptcy court preemption powers to give asbestos and silica claimants exclusive access to GIT's insurance policies. The AG's brief explains that the 19 states are concerned because their states may be claimants in environmental cases seeking damages from GIT. In their view, bankruptcy court orders should not preclude states from seeking monies from GIT insurance policies that otherwise should be available to pay damages. the states might win. In other words, the tiny number of silica claims described in yesterday's post, plus asbestos claims, should not be be used to ordinary preempt state law and should not leave the asbestos and silica personal injury claimants with exclusive access to insurance policy proceeds generated from GIT insurance policies.

The amicus brief explains in detail why that result is bad policy, and join with the insurers in attacking the broad preemption powers that the bankruptcy court purported to exercise under bankruptcy code section 1123. According to the amici, the conclusion of the lower courts is "extremely dangerous" because it allows bankruptcy court to become a "haven for wrongdoers."

The amicus brief is well worth reading in its entirety, and is available at the end of the compilation of GIT briefs available here. The following sets out some full text from the amicus brief, at 2-4, in order to provide a taste of intensity of the 19 states that disagree with the broad preemption result sought by the debtor and the asbestos and silica claimants:


"The conclusion of the bankruptcy and the district courts herein - that the opening phrase in Section 1123(a), "Notwithstanding any otherwise applicable nonbankruptcy law to the contrary," does impose such a broad preemptive effect -is deeply flawed in that it reads that language without any historical context, and without any attempt to harmonize that language with the rest of the Bankruptcy Code. And, by reaching that conclusion, the lower courts have created a situation by which an entity can use bankruptcy to escape from all regulatory authority if it can convince a bankruptcy court that doing so would allow it to implement its plan.

Such a result would fly in the face of the oft-repeated axiom that bankruptcy is not meant to be a "haven for wrongdoers." 1 Collier Bankruptcy Man. P 362.04 at 362-23 (4th ed. 1980); 2 Collier on Bankruptcy P 362.04 at 362-36 (15th ed. 1980) as cited by Securities and Exchange Commission v. First Financial Group of Texas, 645 F.2d 429, 439 fn. 16 (5th Cir. 1981) and numerous other circuit courts thereafter. It is certainly the case that many valid laws create operating difficulties for those who do not wish to follow their strictures. The Code, though, does not allow a debtor to flout those requirements during the case. Sections 362(b)(1) and (4), for example, except governmental criminal and civil regulatory actions from the automatic stay; 28 U.S.C. 959(b) requires debtors to obey the laws of the states with respect to the property of the estate during the case; and 28 U.S.C. 1452(a) bars debtors from removing regulatory actions to bankruptcy court from the state courts in which they are pending. Yet, under the interpretation espoused below, those constraints disappear as soon as the debtor proposes a plan under which it asserts that it needs to avoid the restrictions in order to successfully reorganize.

Such a reading of this language would destroy the Amici States' ability to preserve their regulatory authority in the face of a bankruptcy filing. It could allow a debtor to propose and confirm a plan with terms that provide for anything from ignoring the limits on charitable conversions, to barring enforcement of clean-up obligations for contaminated property that it retains post-petition, to denying state consumer protection agencies the ability to bar the debtor from continuing methods of operations that are unfair and deceptive and violate state law. The Amici States do not believe that any such result could possibly have been contemplated by Congress in adding this language to Section 1123 in 1984 as a "technical amendment." (see discussion below, pp. 15-17). They file this brief to urge this court to reverse the decisions below and find that the appropriate scope of preemption under Section 1123 is far narrower than that stated in the decisions at issue and, properly read, does not bar appellants from raising their substantive arguments. The Amici States are not concerned with the final outcome of that substantive litigation, and take no position on the merits of the insurers' antiassignment defense; their only concern is with the extremely dangerous consequences of the means by which the lower courts arrived at the conclusion that insurers are barred from even raising those issues. (footnotes omitted)."

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The Travelers/Manville case pending before the Supreme Court is only one of the asbestos Chapter 11 cases pending in federal appellate courts. This post deals with yet another such case, In Re Global Industrial Technologies, Inc. (GIT), an appeal pending in the Third Circuit; with oral argument scheduled for May 20, 2009. Like Travelers/Manville,the GIT case has generated a telling nonpartisan amicus brief, and focuses attention on fact patterns that illustrate why mass tort bankruptcy injunctions have been allowed to go too far by rulings that block effective challenges to the plan by would-be objectors. The amicus brief and opening appellate briefs from the insurers are collected here.

GIT Issues and Arguments by Hartford

GIT presents multiple significant issues raised by insurers of GIT that seek to overturn the confirmed plan. Hartford raises perhaps the most interesting issues. One is its assertions is, in essence, that asbestos claims were used as an improper excuse for the bankruptcy court to issue an unnecessary and unconstitutional section 105 injunction at the behest of plaintiff's lawyers to create an unneeded "silica trust" to pay allegedly fraudulent silica claims. Hartford argues that the lower courts rubber-stamped the silica trust and injunction as "necessary" after the lower courts held that Hartford and other insurers lacked standing to object to the plan. According to Hartford, the silica trust is in reality "a scheme to use the bankruptcy process to generate .... dubious or fraudulent silica-related claims, to hand Debtors' insurers the bill for those claims, and to deprive insurers of defenses to coverage arising from that very scheme." Hartford Brief at 1.

To support its argument, Hartford musters various proofs, three of which are compelling both individually and collectively. Hartford's points are summarized immediately below with citations to the brief. Extended quotes from the brief are set out at the bottom of this text.

First, Hartford points out that the plan only enjoins silica claims arising from alleged "exposures" prior to a certain date (the date the chapter 11 petition was filed), and thus the plan leaves GIT liable to pay all silica claims arising from later exposures. Hartford Brief at n. 7. It certainly does seem illogical to argue that it's "necessary" to resolve only some but not all of a set of potential future claims.

Second, Hartford points out that the "silica trust" is not funded by the debtor, and instead is to be funded only by monies paid out from some $ 500 million of GIT insurance policies that contain "asbestos exclusions." The asbestos exclusions render the policies unable to pay asbestos claims. Hartford Brief at 9-10. As Hartford argues, it certainly is illogical to argue in an asbestos bankruptcy that is "necessary" to resolve silica claims to be paid from insurance policies that can not be used to pay asbestos claims.

Third, Hartford contrasts silica claiming facts before the chapter 11 petition was filed to the silica claiming facts after the petition was filed. Prior to the petition, GIT had been sued in less than 200 silica cases, GIT had not paid out any money on silica claims, and its insurers had only paid out $ 312,000 for silica claims. Hartford Brief at 8. In contrast, after the petition was filed, silica claims were soon submitted in droves (over 4,500). As Hartford points out, the sudden spate of claims was a win-win for everyone but the insurers since the spate of claims gave GIT votes needed to approve its plan under section 524(g), and payments by the trust on the claims would over time generate money for claimants and their lawyers, with the claims judged by the trust under a limp "proof" standard. Hartford Brief at 9-14. Thus, everyone would be happy except the insurers called on to pay the silica claims after approval by the trust.

Lessons from GIT for Manville/Travelers

At least two points may be drawn from the facts regarding the silica trust and the use of the GIT insurance policies for silica claims but not asbestos claims. One point is that the facts of the silica trust situation should be tested against the Travelers/Manville hypothetical question posed by Justice Roberts. He asked whether an asbestos chapter 11 court could issue an injunction to resolve "traffic accident" claims if the insurer maintained that resolving the traffic accidents were "necessary" for it to agree to the resolution of the asbestos claims. Plainly the hypothetical ordinarily should be answered: "no," if bankruptcy power is to have any limits, absent a detailed and explicit record proving actual necessity, with the record having been subject to meaningful testing by an actual adversary. (Such a record does not appear to exist in Travelers/Manville.) Otherwise, the parties agreement that a deal is "necessary" will bind the hands of the bankruptcy court, and will give the debtor and friends control over the use of federal bankruptcy court power. Consider also that the injunction issued in GIT is even less defensible as "necessary" because the injunction was issued over the objection of the insurer, thus meaning that the only "necessity" arose from the debtor and the plaintiff's lawyers agreeing on a deal that cost them nothing.

The facts of GIT also prove that chapter 11 cases can be completed, and deals can and will be reached between debtors and personal injury plaintiff's lawyers, even without agreement from insurers. Thus, the deal disproves Travelers naked assertion that chapter 11 cases will be concluded only if insurer are given relief that extends far beyond claims tightly derivative of claims against the debtor. Note further that GIT was willing to leave itself exposed to some but not all potential future silica claims, thus disproving Travelers' arguments that bankruptcies can end only if there is "finality" on all tort claims.

A future post will address the amicus brief, and the response briefs from the plan proponents.

Set out below are longer quotes from Hartford's brief.
________________

As to Hartford's point regarding the injunction being unnecessary because it only covers some but all future silica claims, Hartford's brief states the following:

"Under the plan, silica claims against A.P. Green based on exposure prior to the petition date will be channeled to the silica trust. JA119, JA892. Claims based on post-petition exposure will ride through the bankruptcy and become the responsibility of the reorganized Debtors. JA65, JA119, JA137." Hartford Brief at n.7.

Hartford's other two points are presented in the following text from pages 1, 7-14, with omissions as indicated by ellipses and stars:

In recent years, plaintiffs' lawyers have flooded the courts with dubious or
outright fraudulent claims of silica-related injury. As the district judge presiding over the silica multidistrict litigation described such claims: "[T]hese diagnoses were driven by neither health nor justice: they were manufactured for money." In re Silica Prods. Liab. Litig., 398 F. Supp. 2d 563, 635 (S.D. Tex. 2005) (Jack, J.) This case centers on a scheme to use the bankruptcy process to generate similarly dubious or fraudulent silica-related claims, to hand Debtors' insurers the bill for those claims, and to deprive insurers of defenses to coverage arising from that very scheme. Hartford Brief at 1.

***

Debtor A.P. Green Industries, Inc., a Missouri corporation founded in 1915,
manufactures and sells refractory products--construction materials used in high temperature environments.... Before the mid-1970s, several of the refractory products manufactured and sold by A.P. Green allegedly contained asbestos. Certain plaintiffs sued A.P. Green, claiming injury from exposure to those products. JA820. As of the bankruptcy filing in 2002, A.P. Green had paid approximately $448 million to resolve more than 200,000 asbestos-related claims, and an additional 235,000 asbestos-related claims were pending. JA820-821.

A.P. Green's experience with silica was another story entirely. As of the
bankruptcy filing, there was exactly one lawsuit pending against A.P. Green,in Texas state court, consisting of claims by 169 individuals for bodily injury caused by silica-containing products. JA106, JA1011. Including those 169 claims, Debtors identified fewer than 200 claims asserted against A.P. Green for silica related injury in the 25 years before the bankruptcy. JA106. In those 25 years, A.P. Green never paid any of its own money on account of silica claims, and its primary insurer had paid only $312,000 to resolve such claims. JA106-107. Hartford Brief at 7-8.

B. Debtors' Bankruptcy Filings And Plan

In February 2002, GIT and certain of its subsidiaries, including A.P. Green,
filed Chapter 11 bankruptcy cases. JA763-770. Debtors sought bankruptcy
protection not to address silica liability, but to address "adverse business
conditions" and "to deal with the overwhelming number of asbestos liability
lawsuits and claims pending against them." JA117; see also JA780 (Debtors filed for bankruptcy due to "the costs of asbestos litigation," a "deterioration of general business conditions," and an inability "to secure working capital financing").

In order to confirm a plan of reorganization that would resolve that
"overwhelming" asbestos liability, Debtors needed the approval of 75% of the
asbestos claimants, and thus needed to reach a deal with plaintiffs' lawyers.
See In re Congoleum Corp., 426 F.3d 675, 680 (3d Cir. 2005) (noting that "[t]he realities of securing favorable votes from thousands of claimants to meet the 75% approvalrequirement forces debtors to work closely" with plaintiffs' lawyers). In the course of negotiating that deal, Debtors determined that they had nearly $500 million in potential insurance coverage that did not cover asbestos claims (generally because of express asbestos exclusions, which became typical provisions in liability policies in the 1980s) but that, in their view, was available to cover silica claims. JA823. Accordingly, Debtors and asbestos plaintiffs' counsel (many of whom also represented persons asserting silica claims against other companies) agreed upon a plan that included not just an asbestos trust and channeling injunction, but a silica trust and channeling injunction as well. JA2891, JA2893.7 Debtors and plaintiffs' counsel also negotiated the Trust Distribution Procedures--the terms under which the silica trust would evaluate and pay claims. JA2968-3031. In addition, Debtors agreed with plaintiffs' counsel that the Trust Advisory Committee and the Future Claims Representative--that is, many of the persons in charge of operating the trust and overseeing the evaluation and payment of silica claims--would be lawyers representing the interests of alleged silica claimants. JA1332-1404. Debtors are making no contribution of their own funds to the silica trust, which will be funded entirely by insurance. JA2894-2895. The trust is to receive $35.5 million in proceeds from several insurance settlements. In addition, A.P. Green will assign to the trust its rights under its insurance policies with asbestos exclusions, including policies issued by Appellants. JA892, JA2894-2895,
JA3037.

After agreeing with plaintiffs' counsel to structure the plan to include the silica trust, Debtors actively sought out claimants to support the plan. Having virtually no silica claimants of their own, Debtors obtained a list of silica claimants from another company's bankruptcy and solicited votes for their plan from counsel for those claimants (many of whom were the same firms representing asbestos claimants against Debtors). JA1466-1469. Ultimately, 5,125 votes were cast on behalf of persons with alleged silica claims against Debtors. JA1412. The bulk of these votes were submitted by a handful of law firms via master ballots. JA1417. Indeed, one law firm, the Provost Umphrey Law Firm, accounted for over half the votes. JA1334. Hartford Brief at 7-11.

[Brief describes Judge Jack's Silica MDL opinion finding fraud in silica claiming, and brief describes resulting tort reform legislation] These developments, combined with a review of the supplemental submissions in this case, leave little doubt that most of the claims asserted by the 5,125 silica claimants who voted on the plan are invalid. Over half the claimants who submitted supplemental forms were diagnosed by doctors whose diagnoses were rejected as fraudulent by Judge Jack. JA2074. In addition, over half the claimants had previously filed asbestos-related claims or been diagnosed with an asbestos-related disease, JA2159--making it extremely unlikely that they also had a legitimate silica-related claim. In re Silica Prods. Liab. Litig., 398 F. Supp. 2d at 603; see also JA1431 (Decl. of David Weill) (noting the near impossibility of a Case: 08-3650 Document: 00312869189 Page: 23 Date Filed: 12/04/2008 person's contracting both an asbestos-related and a silica-related disease in a working lifetime). Fully 82% of the claims bore at least one of these markers of fraud. JA2159. Hartford Brief at 13-14.

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The oral argument transcript is availble here.

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Updated: An April 6 blog entry by Alison Frankel includes a letter from Cozen O'Conner responding to Mr. Ostrager.

Today's oral argument date in the Supreme Court for the Travelers/Manville case has drawn some massive hyperbole in a blog article. The article quotes Travelers' counsel, Barry Ostrager, as saying that the case is very important, but that one of his opponents, Chubb Insurance Company, has received the worst legal advice "ever" in arguing its position. It's true the case may have a massive impact on the use of bankruptcy court as a means to resolve "mass tort" litigation. As for the quality of the legal advice provided to Chubb by Jack Cohn, consider that an estimable group of bankruptcy and constitutional law professors disagree with Mr. Ostrager, and explained why in an excellent amicus brief that is available here for no cost through the SCOTUS wiki and the ABA's efforts to put SCOTUS briefs online.

The Travelers issue boils down to whether a bankruptcy court can issue a national (global?) injunction that bars any and all future claims against an insurer of the debtor after the insurer has paid money to settle coverage claims brought by the debtor. In my view, the correct answer is: no, for a variety of reasons. The main reason? Such a sweeping injunctive order is improper for a variety of reasons. The principal flaw is that government action that improperly takes away property rights (legal claims against the insurer) of third parties, and takes the claims away without providing a meaningful prior hearing or payment of just compensation, thereby violating the 5th amendment rights of the persons whose claims are extinguished.

I argued many of the same issues last year in the Federal-Mogul asbestos bankruptcy. The bankruptcy court judge, Judith Fitzgerald, has heard many of the asbestos bankruptcies pursuant to an appoint met order by the Third Circuit. She did not reach all the issues but did apply the "derivative" standard that is at issue in the Travelers/Manville case. There, in a September 30. 2008 opinion, Judge Fitzgerald blocked an effort to expand bankruptcy court jurisdiction. See In re Federal-Mogul Global, Inc, 2008 Bankr. LEXIS 3517. I've frequently disagreed with Judge Fitzgerald, but she ruled correctly in this instance and her ruling also supports Chubb/Jack Cohn. And, for what it's worth, I also agree with Chubb and Jack Cohn.


As always, please bear in mind my standard disclosure: I have in the past and do now represent non-insurer parties opposed to certain terms of asbestos bankruptcies, and also have represented and do represent entities that are defendants in or financially tied to asbestos litigation through indemnity obligations or shared insurance. Further specifics are available on my bio at my law firm's website (http://www.butlerrubin.com/) or feel free to email me at work if you need further information. .

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Reminder: Monday, March 30, 2009, is the date for oral argument in the Supreme Court on the Travelers/Manville case. The appeal presents important issues regarding the extent of bankruptcy court power and jurisdiction in a Chapter 11 case arising from asbestos litigation. The outcome may well apply to all mass tort bankruptcies.

All the briefs are collected at this page of the Scotus wiki built as a companion to the respected Scotusblog. Expert commentary also is provided.

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A prior post on this blog (Friday March 6, 2008) provided information regarding the Manville Trust 1) reducing data available from the trust and 2) ending its requirement that claimants submit social security numbers. The Trust's CRMC administrator has now advised that the reason it dropped the social security number requirement was to comply with an opinion from legal counsel, with the opinion apparently focused on persons who work in the United States without a social security number (which to me would seem to be "illegal aliens.") His email also states that "product identification" evidence is required from the claimant, that duplicate checking is performed at the Manville Trust, and that three such claims have been filed to date.
So, that's an interesting explanation. Now the question is: will the Manville Trust return to its prior practice of licensing its data to outside experts and disclosing country-specific data regarding "foreign" claims. so that they use as it as in the past.

Note also that the CRMC website no longer contains the previously posted notice regarding social security numbers. The website instead now has a notice that explains the policy change in more detail - it states the following:

"Updated on 11/11/08
--- The Manville Trust changed its policy with respect to requiring a SSN for claimants exposed in the United States. This position was based on a legal opinion that individuals without SSN's who were exposed to Johns-Manville asbestos in the United States may file a claim against the Trust. This can occur in unusual instances, such as when a claimant is a foreign citizen who worked temporarily in the United States. Claimants in such circumstances are subject to increased evidentiary requirements to support their asbestos exposure allegations. If you are an electronic filer you will receive a notice via the message board indicating that a MV-Exposure Document is required. Examples of evidence that would be sufficient for meeting this requirement would include: work history records, deposition materials, affidavits, etc. Furthermore, claimant duplicate checking continues using the claimant's first name, middle initial, last name and date of birth. "

__________________________________________________________________


The specifics of the communications were as follows.

I followed up on the March 6, 2009 blog entry by sending an email to the trust with the link to the blog entry regarding the trust's changes. Mr. Garelick, counsel for CRMC, responded with a March 10 email (full text pasted below) providing additional information on the trust's action regarding social security numbers.

___________________________________________________________________

Dear Mr. Hartley,

Thank you for bringing to my attention your March 6, 2009 blog entry regarding Manville Trust claims data. I believe you misunderstood the reason for, and impact of, the Trust's recent policy change regarding submission of claimant Social Security numbers ("SSNs").

In November of 2008, the Manville Trust changed its policy with respect to requiring an SSN for claimants exposed in the United States. This position was based on a legal opinion that individuals without SSN's who were exposed to Johns-Manville asbestos in the United States may file claims against the Trust. This can occur in unusual instances, such as when a claimant is a foreign citizen who worked temporarily in the United States. Claimants in such circumstances are subject to increased evidentiary requirements to support their asbestos exposure allegations.

When such a claim is filed, the law firm filing on behalf of the claimant, or the claimant, is required to provide evidence to the Trust of exposure to Johns-Manville asbestos in the United States. If the documentation is approved the claim is processed accordingly. Examples of evidence that would be sufficient for meeting this requirement would include: work history records, deposition materials, affidavits, etc. Furthermore, claimant duplicate checking continues using the claimant's first name, middle initial, last name and date of birth. To date, three (3) claims have been filed without SSNs.

--Jared Garelick
Jared S. Garelick
Senior Attorney
Claims Resolution Managment Corporation (CRMC)
3110 Fairview Park Drive, Suite 200
P.O. Box 12003
Falls Church, VA 22042-0683
Tel. (703) 205-0836
Fax (703) 205-6248

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Monday, March 30, 2009, is the date for oral argument in the Supreme Court on the Travelers/Manville case. The appeal presents important issues regarding the extent of bankruptcy court power and jurisdiction in a Chapter 11 case arising from asbestos litigation. The outcome may well apply to all mass tort bankruptcies.


All the briefs are collected at this page of the Scotus wiki built as a companion to the respected Scotusblog. Expert commentary also is provided.

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-- See also March 11, 2009 update on the entry below -------

___________________________________________________________________

Today's entry is unusual, and arises because of fact research I undertook in preparation for a presentation as part of panel focused on "global asbestos claiming" at a March 9-11 BVR/Mealeys seminar on Emerging Trends in Asbestos Litigation. Why write about fact research? Because the research unexpectedly yielded facts indicating that the Johns-Manville asbestos trust is cutting back on transparency regarding claims submitted to and/or paid by the trust.

Specifically, the court-created Manville Trust is now reducing transparency by limiting the availability of online and off-line data on the claims submitted to and/or paid by the trust. As is further detailed below, the Manville Trust is cutting the public availability regarding claims submitted from outside North America ("foreign" or "global" claims data'") and the trust also 2) is no longer allowing outside experts to purchase a license to use digital copies of an up-to-date, comprehensive database of all the data for Manville Trust claims.

In addition to limiting access to data, the Manville Trust also is impairing transparency by modifying its data collection activities. Specifically, as of November 2008, the Trust dropped its long-standing rule requiring claimants to provide their social security numbers. Without submission and tracking of social security numbers, it is harder to distinguish between claimants, and thus harder to detect duplicate and/or fraudulent claiming to the Manville trust, and/or to use the Manville Data as a comparative reference for databases containing other sets of asbestos claims.

Do these changes really matter? Yes.

Why? At the abstract level, the changes matter for those who embrace Justice Brandeis' advice that "sunshine is the best disinfectant." See also Graham, Mary, Is Sunshine the Best Disinfectant? The Promise and Problems of Environmental Disclosure (arguing that environmental disclosure requirements actually have improved environment and policy-making).

At the practical level, the transparency cutbacks matter because the Manville Trust data are embedded in much work that outside experts have for years performed in reliance on Manville Trust data. For example, my fellow blogger, expert witness Steve Sellick, previously licensed and used the Manville Data as part of consulting work involving estimating future claims and/or values. These estimates can matter because in some instances they may be used for evaluating or setting FASB 5 reserves. But, his Manville Data license was recently terminated, as were Manville Data licenses held by other experts, thus leaving the experts without access to up-to-date from a data resource that has been relied on for many years.

Of equal importance, outside experts have for many years relied on Manville Trust data in "liability estimation" proceedings in Chapter 11 asbestos bankruptcies. The liability estimates in these cases sometimes involve billions of dollars per case, and already involve tens of billions of dollars in the aggregate. See, e.g., In re Federal-Mogul Global Inc., 330 BR 133, 144, 149 (D. Del. 2005)(Rodriguez, J.)(opinion on "liability estimation" for Turner & Newall entities; court describes estimate presented for the Asbestos Creditors' Committee and the Futures Representative (Eric Green) by Dr. Mark Peterson, with his estimates of future claims based in part on data regarding claims against the Manville Trust, and a separate estimate for the Asbestos Property Damage Committee by Dr. Robin Cantor, with the future claims portion of the estimate also based in part on data regarding claims against the Manville Trust, and pending claims evaluated in part by imputing data to Turner & Newall claims by "matching data" to the Manville Trust data" ). In Chapter 11 liability estimates, the claiming history of the Manville Trust's may, for example, be pointed to as evidence proving that asbestos claiming rates are rising and falling in general or for certain categories of disease. Indeed, the claiming rate for "nonmalignants" have been and continue to be a key issue for liability estimates. The validity of future estimates also should matter to trustees who must make decisions on how much money to pay out today bearing in mind the amount of expected future claims and payouts. See generally Bates, Charles and Mullen, Charles, Have Your Tort and Eat It Too (PhD economists with extensive asbestos experience describe scope and impacts of the $ 30 billion or so of Chapter 11 asbestos trusts).

Accordingly, the Manville Trust data cutbacks may have extensive financial consequences because the absence of the data makes it harder for experts to provide the best possible predictions from the most comprehensive data. The absence of up-to-date also makes it harder for lawyers to cross-examine experts on their predictions. That matters because in general, claiming rates have fallen significantly since the height of asbestos claiming in the early to mid 2000s. The absence of up-to-date data also may hurt current and/or future asbestos claimants who are best paid fairly if reliable estimates can be and are in fact made. In short, billions of dollars may change hands based on estimates that are being impaired by the absence of the Manville Trust data.

The data cutbacks also matter with respect to duplicate and fraudulent claiming. By 1) terminating the Manville Trust data licenses and 2) allowing claims to be submitted without social security numbers as of November 2008, the Manville Trust is making it harder to weed out duplicate and fraudulent claims submitted to the trust itself. The cutbacks also making it harder for other trusts or defendants to use the Manville Trust data for comparative purposes with respect to their own databases. Making it harder to find claim duplication or fraud is surely the wrong result after all the time and effort that has spent on trying to shut down those particular bad actors who triggered and asserted thousands upon thousands of inaccurate asbestos claims in courts and to trusts. For those who have somehow missed that topic, it has been covered in great detail in law review articles by Professor Lester Brickman, and in Congressional testimony by, among others, Prof. Brickman and an asbestos plaintiff's lawyer who generally represents cancer claimants, Steven Kazan. See, e.g., Brickman, Lester, The Use of Litigation Screenings in Mass Torts: A Formula for Fraud? (August 11, 2008) available at SSRN: http://ssrn.com/abstract=1275406; Testimony of Lester Brickman before the U.S. Senate Committee on the Judiciary, re: Asbestos: Mixed Dust and FELA Issues, February 2, 2005, available at http://judiciary.senate.gov/testimony.cfm?id=1362 &wit_id=3963; Testimony of Steven Kazan before the U.S. Senate Committee on the Judiciary, re: The Asbestos Litigation Crisis Continues - It is Time for Congress to Act, March 5, 2003, available at http://www.kazanlaw .com /verdicts/articles/kazan_senate.cfm.

Further specifics are provided below regarding the Manville Trust data cutbacks, but first some background is provided for readers not burdened with the history of asbestos litigation and Johns-Manville.

Background on Johns-Manville and the Manville Asbestos Trust: The Manville Trust is the long-term "solution" created to pay tens of thousands of asbestos disease claims filed against the many Johns-Manville entities that comprised the largest U.S. seller of asbestos products. The various Manville entities filed for Chapter 11 protection in 1982 due to thousands of then-pending asbestos claims, and due to thousands of future additional claims expected to arise due to the immense breadth and volume of Manville's asbestos operations. Manville's operations ranged from mining asbestos fiber to manufacturing and selling literally thousands of asbestos-containing products containing asbestos fibers. The bankruptcy ultimately ended with an injunction that "channeled" all asbestos claims to a new court-ordered "Manville Trust." Once appeals were over, the trust was created, funded and left to pay then-pending claims and subsequent claims. See generally In Re Johns-Manville Corp, 68 B.R. 618 (S.D. N.Y. 1986). The Manville Trust's online home is http://www.mantrust.org/.

Fact Research Effort: For the upcoming panel presentation on global asbestos claiming, I went looking for 2008 data regarding "foreign" claims submitted to the Manville Trust by persons who lived and worked outside North America. It seemed that obtaining the data probably would be simple because the Manville Trust foreign claiming data was easy enough to find in the past. Indeed, my files include copies of previously public Manville Trust foreign claims data for 2006 and 2007. Some of the data were presented at prior asbestos seminars, and other data were available through the Trust's website by using its online links to semi-annual reports submitted to the Court with continuing jurisdiction over the trust. The data indicate that 2007 Manville Trust payments on foreign claims were well over $ 8 million. But, on checking the mantrust.org website for 2008 data, I could not find any 2008 data for the global claims. Moreover, I could not find any website links to or images of a report to the Court for the first six-months of 2008, much less a report for year-end 2008.

Trust Confirms Cutback on Transparency for Data Regarding Foreign Claims: Frustrated because I could not readily find the 2008 global claims data through the trust's webiste, I tried to obtain the 2008 global claiming data by sending a February 16, 2009 email to the Manville Trust through its web site's online submission portal . I approached the problem that way because the website explains: "The Trust's subsidiary and claims resolution facility services provider, the Claims Resolution Management Corporation (the "CRMC"), will respond to your questions about the Trust, its operations and policies at inquiry@claimsres.com or refer to the CRMC homepage at http://www.claimsres.com/."
With those easy to follow instructions in front of me, off went my email to the Trust asking about global claiming data for 2008.

In response, I received a prompt return email from Mr. Jared Garelick, who uses a signature line that describes him as senior attorney with the trust. The gist of his reply (full text pasted below) was to say that the foreign claiming data are no longer being made public, at least at this time. His email reported that the cutbacks in data availability "come as the Manville Trustees, working together with Trust constituencies, have reevaluated the Trust's policies regarding the release of claims filing information."

I sent an email back to ask if the Manville court had approved the cutback on transparency. The response from Mr. Garelick was that the Court had not been asked to approve the cutbacks in transparency. (again, full text of emails is pasted below)

Trust Also Confirms Virtual Elimination of Licensing of Comprehensive Manville Trust Data: I've been involved with asbestos litigation long enough to know that economists and other quantitative types have for years been licensing and using comprehensive Manville Trust claims data as a tool for various types of work, including predicting claim trends and analyses regarding data missing from other claims databases, as well as looking for duplicative or fraudulent claiming by some individuals. Accordingly, I thought perhaps the Manville Trust database would include the 2008 global claiming data I was after, and so made calls and sent emails to some people I believed were licensees of the Manville Trust database. The calls and emails, however, soon yielded the answer that the Manville Trust has been issuing letters terminating license agreements. It thus appeared that the comprehensive, up to date Manville Trust database is now largely or perhaps completely out of the public domain.
So, in my email to the Trust, I asked whether it is true that the Trust has been terminating licenses and is no longer licensing access to the comprehensive Manville Trust database. In response, Mr. Garelick's email confirmed that "CRMC [the administrator for the Trust] has cancelled licenses for comprehensive claims filing databases known as the Manville Trust Data. There is a possibility that licensing might be resumed on a very limited case by case basis when the data is urgently needed for experts in certain court proceedings. Again, I am unable to estimate when any change in this policy might occur." Thus, the Manville Trust once again has cut back on transparency, this time by at least for now having a practice that generally blocks outside experts from accessing previously-available comprehensive data on claims to and payments by the Trust.

Manville Trust No Longer Requires Use of Social Security Numbers by Claimants: While going through the Manville Trust website, I also learned that the trust recently dropped its long-standing rule requiring claimants to submit their social security numbers as part of a claim. Said another way, the Manville Trust has now dropped a rule requiring submission of data that no doubt makes it faster, easier and cheaper to match Manville data to data in other databases, or to find and identify duplicate or fraudulent claims. The rule change is described at the CRMC website (http://www.claimsres.com/), at the right hand side of the home page text block, in a field that includes text stating the following:

"Updated on 11/11/08

"---CRMC will now allow the filing of a claim for a claimant with US exposure without a SSN. However, in that instance you will be required to provide evidence as to how that individual was exposed to JM product within the US. If you are an electronic filer you will receive a notice via the message board indicating that a MV-Exposure Document is required. You must supply specific proof from the claimant detailing how they were exposed."

________________________________________________________________________________________________________________________________________________________________

Disclaimer and Disclosure: Statements of opinon on this blog and/or presentations at asbestos seminars represent my personal views, and are not views of clients. Clients do not pay for my time to write blog entries and do not see blog entries prior to publishing. Clients also do not pay for my time to write or give presentations on asbestos litigation, and do not see presentations prior to submission to the seminar sponsor. My perspective admittedly is shaped by my twenty-five years of work as a commercial litigator and "asbestos lawyer." Since 1984, I have represented and do represent entities that are defendants in asbestos litigation, or are financially linked to asbestos litigation through indemnity obligations and/or "shared insurance." In addition, I have represented and do represent non-insurer entities opposed to certain terms of certain asbestos bankruptcies. Further specifics are available on my bio at my law firm's website (www.butlerrubin.com), or email me at khartley@butlerrubin.com if you need further information.
______________________________________________________________________________________________________________________________________________

Set out below are cut and paste copies of the two emails I sent to the Manville Trust, and the two response emails sent by Mr. Garelick

_________________________________________________________________
From: khartley@butlerrubin.com [mailto:khartley@butlerrubin.com]
Sent: Monday, February 16, 2009 12:37 PM
To: Inquiry
Subject: Questions Regarding the Availability of Data Regarding "Foreign Claims" and Manville Claims Data in General

Dear Sir or Madam:

Pursuant to instructions on the Manville and CRMC websites, I am writing to this address to pose the questions set out below regarding the availability of data from the Manville Trust or its agents ( such as CRMC.) In general, I'd like to find about the availability of information on payments by the Manville Trust for "foreign" claims ( meaning claims for exposures outside the US or Canada), and whether the previously available "Manville Trust Data" will again be made available to experts through licensing or other arrangements. The specific questions are as follows.

1) In the past, Mr. David Austern occasionally provided country-specific Manville claims data at various asbestos-seminars, as illustrated by the attached image of data from a prior presentation. My office has searched across your website, but we could not find country-specific foreign claims data on your website or in the quarterly or annual reports. Is country-specific foreign claims and/or payment data available from you in some format for 2008 (or all years), and what do I need to do to obtain the data?

2) Past annual trustee's reports on your website, such as the 2007 report, provided some overall but not country-specific data regarding "foreign" claims (the generic data is set out in each report's Exhibit B regarding claims information. Examples are attached.) We've not been able to find such reports for the first or second half of 2008. Are such reports available for 2008, and what do I need to do to obtain them?

3) What is the status of the availability of the claims and payments data commonly known as the "Manville Trust Data"? And, does that data set include country-specific data on foreign claims and payments? I ask because I've heard for many years that most asbestos data experts used to have a license agreement to use the Manville Trust Data, and used that data to run comparisons to other databases of asbestos claims information in a process sometimes called "match to Manville." But today I've heard some experts say that Manville/CRMC has terminated license agreements for the Manville Trust Data and that the Manville Trust Data is no longer available for review and comparison by persons outside of the Trust/CRMC. Is is true that the Manville Trust/CRMC terminated data license agreements with such experts, and is it true that the Manville Trust Data is no longer being licensed today to outside users? If true, why were those actions taken? And, if true, was the bankruptcy court asked to approve those actions, when, and are the relevant papers available through you or PACER? When, if ever, do you expect the situation to change?

Thanks very much for your time and attention to these questions. I am giving an unpaid presentation regarding global asbestos claiming on March 11 at a Mealey's seminar on asbestos trends, and your answers of course would be helpful to have before the presentation.

Kirk
Kirk T. Hartley
Butler Rubin Saltarelli & Boyd
www.butlerrubin.com
3 First National Plaza - Suite 1800
Chicago, IL 60602
312-696-4471 (direct)
312-873-4382 (fax)
312-802-4471 (cell)



_________________________________________________________________
Jared Garelick
02/18/2009 10:45 AM
To
"khartley@butlerrubin.com"
cc
Subject
Re: Questions Regarding the Availability of Data Regarding "Foreign Claims" and Manville Claims Data in General

Dear Mr. Hartley,


The Manville Trust claims filing information you seek is not currently publicly available. As your research indicates, the Trust did make such information available in the past. The change has come as the Manville Trustees, working together with Trust constituencies, have reevaluated the Trust's policies regarding the release of claims filing information. During the pendency of the reevaluation, which is ongoing, the Trust has declined to make available certain information that it previously did. As you observed, this includes a reduction in the claims filing information the Trust provides in its reports. Whether or to what extent the policy will change is uncertain. You should not count on this type of information becoming publicly available again, at least in the near term.

You are also correct that CRMC has cancelled licenses for comprehensive claims filing databases known as the Manville Trust Data. There is a possibility that licensing might be resumed on a very limited case by case basis when the data is urgently needed for experts in certain court proceedings. Again, I am unable to estimate when any change in this policy might occur.
I am sorry we are not able to be of more assistance. Good luck with your presentation.
Very truly yours,
Jared S. Garelick
Senior Attorney
__________________________________________________________


From: khartley@butlerrubin.com [mailto:khartley@butlerrubin.com]
Sent: Wednesday, February 18, 2009 12:25 PM
To: Jared Garelick
Subject: Re: Questions Regarding the Availability of Data Regarding "Foreign Claims" and Manville Claims Data in General

Dear Mr. Garelick:

Thank you for your very timely response to my email inquiry of February 16 to the Manville Trust.

Your response is clear except that it does not explicitly address whether the Manville bankruptcy court was asked to or did approve any of the cutbacks in the availability of information. I infer that approval was not requested or received, but may I impose on you to explicitly address the topic.

Again, thank you for your assistance.

Very Truly Yours,
Kirk
Kirk T. Hartley
Butler Rubin Saltarelli & Boyd
www.butlerrubin.com
3 First National Plaza - Suite 1800
Chicago, IL 60602
312-696-4471 (direct)
312-873-4382 (fax)
312-802-4471 (cell)

____________________

Jared Garelick
02/18/2009 12:42 PM
To "khartley@butlerrubin.com"
cc
Subject RE: Questions Regarding the Availability of Data Regarding "Foreign Claims" and Manville Claims Data in General


Kirk,

Your inference is correct. The Manville Trust's supervising courts were not asked to approve the reduction in the availability of Trust claims filing information.

Very truly yours,

Jared

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James Hardie is an Australian building products company that made lots of asbestos-cement products, some of which were made from the especially lethal blue asbestos fiber known as crocidolite. In years past, it was being sued frequently. It then redomesticated to the Netherlands and established a trust to pay victims, perceiving the law there as favorable towards that end. The trust turned out to be grossly underfunded (which in my opinion was obvious from the start to anyone with a brain and any meaningful experience in asbestos litigation). Ultimately 10 of the senior officers were taken to trial by Australian securities regulators for misleading statements to investors. A recent newspaper article indicates the case is moving towards the end of the becn trial, with summations having started. A decision is expected in a few months. It will be fascinating to see how the judge assesses the situation.

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It is striking news that a bankruptcy judge has refused to allow Congoleum to continue to try to confirm an asbestos bankruptcy plan. Instead, late last week, she cut off the litigation with a final order that is being appealed. The opinion and related papers are here. The case has along history that is summarized in an appendix to the opinion, and I will not try to summarize it here today since I am on vacation. That said, the appeal here, if it goes forward, could break some fascinating new legal ground applicable to any and all asbestos bankruptcies. Issues that could be resolved include standing to contest terms of the Chapter 11 plans, and the propriety of plan voting rights related to persons who settle claims before and after the bankruptcy under special deals.

The news is striking because over the last few years, there have been very few denials of the outcome sought by the asbestos plaintiff's bar and the handful of companies that found the process expedient. Indeed, these and other players have created an asbestos compensation system parallel to but largely cut off from the tort system. That alternative system has been created in US federal bankruptcy court through trusts, with most created under chapter 11 of the bankruptcy code. The system is huge - existing asbestos trusts held something north of $ 30 billion prior to the financial fiasco, as is described in teh Bates White paper cited below.

The basic procedural history of asbestos bankruptcy litigation is well told in a wonderful series of continually updated papers that the Crowell & Moring firm makes available on its website at this page. Mark Plevin and other lawyers at their firm have represented insurers opposed to various terms of many of the chapter 11 plans. A great overview of the situation is provided by PdD economists Charles Bates and Charles Mullen of Bates White in their paper titled: Have Your Tort and Eat It Too.

Disclosure: I have in the past and do now represent non-insurer parties opposed to certain terms of asbestos bankrupcties, and also have represented and do represent entities that are defendants in or financially tied to asbestos litigation through indemnity obligations or shared insurance. Further specifics are available on my bio at my law firm's website (www.butlerrubin.com) or feel free to email me at work if you need further information.

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Some corporations that made or sold various allegedly "toxic" or harmful products are today looking for and pursuing all kinds of paths to try to exit the "tort system." One such entity is Crown Cork & Seal, which has been part of an ongoing saga in Pennsylvania that arises from a special statute limiting liability for an entity in its position. A recent lower court opinion is a victory for the corporation, but an appeal seems inevitable. The proceedings are described in a law.com article here. The opinion is online here.

One wonders whether or how much extra-territorial effect would be given to this statute by, for example, a court in a nation overseas that may have been place where the corporation's products were sold.

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