Corporate Success in a Mass Tort Chapter 11 – The WR Grace Story
In mass tort bankruptcies, fighting like heck can sometimes work well, especially when done intelligently with few budget limits and an end game in mind. W.R. Grace did that as part of an almost ended 11 year journey through Chapter 11. This article from the Deal nicely traces in general terms the financial outcome side of the story for W.R. Grace.
Not mentioned clearly enough in the article is the specific reality that Grace used Chapter 11 to ride out the asbestos litigation bulge of the late 1990s and early 2000s, and then fought like heck in the bankruptcy to prove that the bulge was just that – a temporary bulge. Specifically, as of the late 1990s and early 2000s, Madison County, Illinois was an out of control venue with hundreds of mesothelioma cancer cases filed and resolved each year. The cases were filed and processed from around the country under an asbestos docket that Randy Bono helped to accelerate, with the extreme pace of the docket controlled by Judge Byron. During Judge Byron’s reign, due process was trampled for defendants in Madison County, and the price of resolving a Madison County mesothelioma case spiraled up for many defendants, especially those who lacked good trial counsel (and that was many defendants because most insurers hated spending the money required to hire smart lawyers and/or to pay for the work that needed to be done for a successful defense.) And, others had false illusions they were not liable even though insulators plainly were entitled to significant compensation when they developed the awful mesothelioma tumor. Judge Byron finally exited in 2004 after the US Chamber of Commerce and media focused a spotlight on the scope and scale of the Madison County asbestos docket (see this 2006 report for key highlights and data),as well as campaign contributions to Illinois’ elected judiciary.
Meanwhile, cases involving the least sick became sometimes valuable because they were filed in massive numbers in a few jurisdictions. "In the year 2000 alone, twelve large companies reported that 520,000 new asbestos claims were filed against them," as reported in this December 2002 study by Michelle J. White of the National Bureau of Economic Research. As traced by Ms. White, tens of thousands of cases were being mass filed in Mississippi and West Virginia, and trial consolidations created value with verdicts.
Values also rose because some (not all) insurers and defendants were doing a terrible job of resolving and defending cases, often because they refused to pay the real costs of coping with the massive growth of asbestos claiming, and resulting changes in the litigation dockets. And, some insurers refused to defend various defendants despite clear obligations to defend, leaving inexperienced lone defendants that sometimes made awful mistakes which hurt many or all other defendants. Indeed, some insurers and defendants panicked, and tried cases they should not have tried. Others paid hundreds of millions in settlements they should not have paid, mainly to people who were not sick under any typical use of the term. Ms. White’s paper provides a cogent explanation of some of the history of how mass filed cases became temporarily valuable during that era:
"A reverse bifurcated bouquet trial of 12 plaintiffs’ asbestos claims in Mississippi in 1998 resulted in phase one compensatory damage awards that totaled $48 million. When the judge threatened to send the issue of punitive damages to the same jury, the defendants settled the 12 cases, reportedly for the full amount of the damage awards. The judge then scheduled an additional 63 cases for trial before the same jury. Defendants lodged an emergency appeal with the Mississippi Supreme Court seeking to disqualify the judge for bias, but their appeal was denied. Defendants then settled all of the remaining 1,738 claims in the large group on extremely favorable terms for plaintiffs. In a bifurcated trial in West Virginia in 2002 that involved 4,000 plaintiffs from 35 states suing a single defendant, liability and a punitive damages multiplier were decided during phase one. After phase one, the judge instructed the parties to negotiate a settlement of all 4,000 claims…."
(Caveat/disclosure – I used to work as an outside counsel for Grace.)