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  • Writer's pictureKirk Hartley

Cross Claiming Among Asbestos Defendants and Asbestos Trusts – A $ 2 Million (AU) Mesothelioma

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.

Why did early exits occur for too little money ? There are many reasons. In my opinion, the fundamental problem is that bankruptcy law and courts try to provide one time certainty through one time estimates of future "liability." Why? Well, because at its core, law is all about economics and money, and Wall Street wants fast, one time answers in order to have a business unit with a predictable cash flow that can be sold for a higher number of multiples of a predictable mulitple of EBIDA or some measure of free cash flow. That approach may be desirable in the short term for for bankers and investors, but it’s not working well for the victims or co-defendants, and so bankruptcy law is too often being used to trump all the social and economic policy efforts inherent in common law tort rules and in recent state legislative "tort reform" efforts (some of which are in some ways flawed, but that’s a different story).

Simply put, one time answers from bankruptcy courts are an idea that’s been proven not to work at all well. At least to date, some but not all long-tail claiming problems (e.g environmental "contamination," asbestos litigation, chemical exposure claims) have proved to be far too unpredictable to be resolved well at one particularr moment in time. That’s especially true because the future liability estimation proceedings in bankruptcy court have virtually nothing to do with science.

Want proof from sources othere than some lawyer writing on a blog? Read the Manville bankruptcy opinions and learn that the plaintiff’s bar and co-defendants failed to get 100% of Manville’s stock and took far too little future cash flow from New Manville. Also note that the first liability estimate in Manville was so low that the Manville trust was insolvent when it first opened its doors, and so it soon had to close its door and go back into into bankruptcy court for a "do over." (During the oral argument last year in the Manville/Travelers case at the Supreme Court, Justice Steven’s accepted Mr. Ostrager’s argument that Manville has been a "success." When I read that comment, (see transcript at 14), I didn’t know whether to laugh or cry – it simply proved how little the Justices know or understand about mass torts, and why other lawyers called the Court’s opinion very "narrow" (read as meaning "advisory"), a view I share. Far more apt, at page 12, was Justice Stevens’ comment that the Manville appeal was "mysterious." With all due respect, Chief Justice Roberts is leading theCourt in the wrong direction with his avowed intent to reach out and resolve "business cases" when, as there, the record is at best scant and unclear, and the subject matter involves complex real world problems unfamiliar to the Justices)

Want more proof ? Read Judge Weinstein’s paper confessing that courts have not done well with masss torts. Also, as to bankruptcy in particular, read this scathing indictment of the bankruptcy court "liability estimation " process. Who wrote the indictment ? Lawyers for W.R. Grace equity holders wrote the brief, but the meat of the indictment is in the expert witness report submitted by James Heckman, a University of Chicago PhD econmist who won a Nobel prize for his other work in economics. His opinion exposes most but not all of the flaws inherent in "estimates" submitted by Mark Peterson, an expert almost always used today by the asbestos plaintiffs.

After reading those materials, read the prior posts on this blog (e.g. here, here and here,) regarding the W.R. Grace ch. 11 settlement – it was a fabulous outcome for Grace because it fought hard and the asbestos plaintiff’s bar wanted to end the case before Grace forced Judge Fitzgerald to write an opinion applying science to law and recognizing and acting on the massive and dubious claiming practices of the not sick. Those claiming practices dominated and distorted asbestos claiming in the the early 2000s, and other eras. Moreover, those practices are relatively alive and well today in the "asbestos trust" system as the not sick have taken massive amounts of money out of the Owens-Corning trust (and others), thus using the wonders of chapter 11 law to run roughshod over tort reform laws enacted in Ohio and elsewhere that seek to block recoveries by the not sick. (Reminder of prior disclosures – I used to represent W.R. Grace and others in asbestos litigation – my standard disclosure is here.) Sadly, the not sick retain some power because Congress unwisely enacted section chapter 11 section 524(g) to "codify Manville" and gave veto power to the holders of 75% of the claims (regardless of the value or merit of the claims, some say.)

Also see the Quigley chapter 11 case, and the battles of a few "cancer victim" lawyers to block or limit recoveries by the not sick; some information is in this prior post but the case is one that deserves far more attention. Further, see this prior post on the GIT/Narco appeal the 3rd Circuit should be deciding soon – note especially the "silica trust" conjured up from a handful of claims. And, finally, I’d refer you to this prior post on mass tort issues that lie ahead, and the flawed use of futures representatives. Note especially the Plevin article linked to in that post – it details the vast and unworkable conflicts of interest that bankruptcy courts tolerate in futures representatives.

Here are the key excerpts from the WSJ article:


Hardie seeks asbestos compo from CSR Milanda Rout From: The Australian February 18, 2010 12:00AM

AUSTRALIA’S two biggest asbestos-makers are fighting it out in court over a $2 million settlement reached with a Victorian man who contracted asbestos-related cancer as a child.

James Hardie — now known as Amaca — has launched proceedings against CSR to seek a contribution for the compensation after Amaca settled the case involving 48-year-old Robert Berengo in the Victorian Supreme Court this week.


Amaca agreed to pay the compensation claim before it reached the courtroom on Tuesday, saving Mr Berengo — who is about to start another round of chemotherapy — from having to go through a trial. The settlement will be paid by Amaca irrespective of its action against CSR.

The liability case, according to lawyers Slater & Gordon, is one of the first to go to trial in Victoria after the breakdown of what they call a gentlemen’s agreement between the two companies to share the financial liabilities of asbestos compensation cases.

Steve Plunkett, the head of Slater & Gordon’s asbestos litigation team, said that until last year, the companies had agreed to share the costs of compensation for victims who were not certain about which of the two had manufactured the asbestos products to which they were exposed.

This was believed to be based roughly on market share but details of the agreement and who withdrew from it is in dispute.

Mr Plunkett said a number of cases had been affected by this issue and he hoped the eventual judgment handed down on the split of costs between the companies would help avoid a recurrence of this situation.

Mr Berengo’s lawyer, Tracy Madden, also from Slater & Gordon, said the $2m settlement from Amaca was a great result for her client. She said they claimed he was exposed to asbestos when he used to hug his father in his asbestos-clad work clothes, and when he would help his father on jobs and shake his father’s painting sheets at home.


Neither company was prepared to comment on the case

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