Bankruptcy Judge Sets Specialty Products' Asbestos Liability At $1.16 Billion

WILMINGTON, Del. -- (Mealey's) Former joint compound producer Bondex International Inc. and its related holding company Specialty Products Holding Corp. face an estimated $1.16 billion in pending and future asbestos personal injury claims, about double what the companies estimate their asbestos liabilities at, a federal bankruptcy judge in Delaware overseeing the companies' joint Chapter 11 case ruled May 20 (In re: Specialty Products Holding Corp., et al., No. 10-11780, D. Del. Bkcy.; 2013 Bankr. LEXIS 2051) [an enhanced version of this opinion is available to lexis.com subscribers].

Estimated Liability

Specialty Products and subsidiary Bondex filed voluntary Chapter 11 bankruptcy petitions in the U.S. Bankruptcy Court for the District of Delaware in 2010 due to thousands of asbestos personal injury lawsuits filed against the companies. A trial was held in January 2013 to estimate the dollar amount of present and future mesothelioma claims caused by exposure to the debtors' asbestos-containing products. The estimate will be used to determine how much money will be needed to fund a trust under Section 524(g) of the Bankruptcy Code to evaluate and pay asbestos claims.

At the hearing and in post-trial briefing, the debtors argued that, rather than basing their estimated liability only on their past settlements of asbestos claims in the tort system, their historical payments to claimants should be reduced for various reasons to assess their present and future claims. By making such reductions, the debtors' expert, economist Charles H. Mullin, estimated the debtors' total current and future liabilities at $300 million to $575 million "net present value."

By contrast, lawyer and behavioral scientist Mark Peterson, the expert for the asbestos creditors' committee (ACC), pegged the debtors' liability for mesothelioma claims at $1.25 billion, and economist Thomas Vasquez, the expert for the future claimants' representative (FCR), testified that the debtors' estimated total mesothelioma liability is $1.1 billion.

'Novel Approach'

Bankruptcy Judge Judith K. Fitzgerald sided with the ACC and FCR and refused to accept the debtors' "novel approach" to estimating their liability. Adopting for the most part Vasquez's findings, the bankruptcy judge said "an appropriate estimate for mesothelioma claims, pending and future, is $1.1 billion net present value."

The parties previously agreed that 6 percent would be added to the mesothelioma estimate to cover all other asbestos personal injury claims, bringing the total estimate for the debtors' asbestos personal injury liability to $1,166,000,000.

Bankruptcy Judge Fitzgerald rejected all of the debtors' arguments as to why their past settlement amounts should be reduced for the purpose of estimating future liability. For example, the debtors asserted that their products contained only chrysotile asbestos, which they said is significantly less potent than other types of asbestos and that there is "substantial evidence" that it does not cause mesothelioma at all. In addition, the debtor's joint compound was mainly used by the do-it-yourself market, so the potential dose associated with the products was extremely small, the debtors said.

Video Evidence

The bankruptcy judge pointed out that the debtors' exposure argument was refuted by a video shown during the estimation trial that included scenes of a worker mixing the debtors' dry product, creating so much dust that the worker was barely visible.

"The video demonstrates that any person who mixed or who was in the area where the mixing occurred was exposed to an extraordinary quantity of airborne particles," the bankruptcy judge said. "This visual display of the huge volume of dust that becomes airborne when a bag of the product involved here is opened and mixed with water, so as to be manually applied to a wall to seal the joints, is clear demonstration that anyone exposed (potentially 40 million people) could inhale the product and potentially develop an asbestos disease. Thus, the number of claims, and Debtors' potential responsibility for them, is apparent."

Bankruptcy Judge Fitzgerald also rejected Mullin's attempts to minimize the debtors' asbestos liability by categorizing the companies' historical settlement payments as either indemnity payments or implicit defense costs to reduce the debtors' settlement payments by an amount that the debtors now say represented their effort to avoid legal fees.

"Dr. Mullin's implicit defense cost theory has not been quantified in reported cases and his attempt to separate those costs out as a component of settlement that would reduce Debtors' 'several share' of asbestos payments is theoretical and never tested," the bankruptcy judge said. "Although, arguendo, we can accept the proposition that Debtors settled cases, in part, to avoid legal fees, we cannot accept the proposition that Debtors' historical payments must or should be reduced by those amounts that Debtors now attribute to implicit defense costs."

Appeal

The debtors' corporate parent, RPM International Inc., said in a news release that the debtors intend to appeal the ruling and that the appeal process is anticipated to last two to three years. RPM says the debtors "firmly believe that the opinion substantially overstates the amount of their liability and is not supported by the facts or the law."

The debtors are represented by Daniel J. DeFranceschi, Paul N. Heath and Zachary I. Shapiro of Richards, Layton & Finger in Wilmington and Gregory M. Gordon and Dan B. Prieto of Jones Day in Dallas.

The committee is represented by Natalie D. Ramsey and Davis Lee Wright of Montgomery, McCracken, Walker & Rhoads in Wilmington, Mark B. Sheppard and Lathrop B. Nelson III of the firm's Philadelphia office and Nathan D. Finch of Motley Rice in Washington, D.C. The FCR is represented by James L. Patton Jr., John T. Dorsey, Edwin J. Harron and Sharon M. Zieg of Young Conaway Stargatt & Taylor in Wilmington.

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