Asbestos Bankruptcy Report
Volume 12, Issue #3 · October 2012
PLAN OF REORGANIZATION
U.S. SUPREME COURT
RELIEF FROM STAY
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CASES IN THIS ISSUE
Thorpe Insulation Company Asbestos Settlement Trust v. Michael J. Mandelbrot and Mandelbrot Law Firm, No. 12-02183, C.D. Calif. Bkcy., J.T. Thorpe Settlement Trust v. Michael J. Mandelbrot and Mandelbrot Law Firm, No. 12-02182, C.D. Calif. Bkcy., Western Asbestos Settlement Trust v. Michael J. Mandelbrot and Mandelbrot Law Firm, No. 12-04190, N.D. Calif. Bkcy.
Garlock Sealing Technologies, LLC, et al. v. Chandler, et al., No. 12-03137, W.D. N.C. Bkcy.
In re Plant Insulation Co. (Fireman's Fund Insurance Company, et al., v. Plant Insulation Co., et al.), No. 12-1887, N.D. Calif.
In re: Pittsburgh Corning Corporation, No. 00-22876, W.D. Pa. Bkcy.
In re Plant Insulation Co., No. 09-31347, N.D. Calif. Bkcy.
In re: Lloyd E. Mitchell Inc. (Maryland Casualty Company, et al., v. Lloyd E. Mitchell, Inc.), No. 06-13250, D. Md. Bkcy.
In re: Global Industrial Technologies, Inc., et al., No. 02-21626, W.D. Pa. Bkcy.
In re: Garlock Sealing Technologies, et al., No. 10-31607, W.D. N.C. Bkcy.
In re: Specialty Products Holding Corp., et al., No. 10-11780, D. Del. Bkcy.
Continental Insurance Company v. Thorpe Insulation Company, No. 11-1310, U.S. Sup.
In re: Pittsburgh Corning Corporation, No. 00-22876, W.D. Pa. Bkcy.
API, Inc. Asbestos Settlement Trust v. Atlantic Mutual Insurance Co., No. 09-665, D. Minn.
In re: ASARCO LLC, et al., No. 05-21207, S.D. Texas Bkcy.
Georgia-Pacific LLC, f/k/a Georgia-Pacific Corp. v. Jocelyn Anne Farrar, No. 751 September Term 2010, Md. Spec. App.
In re: Asbestos Litigation: Janine McCoy and Marvin McCoy Limited to: PolyVision Corp., No. N10C-04-203 ASB, Del. Super., New Castle Co.
Delores A. LaParl, personal representative of the estate of William S. LaParl v. Columbia Trans. Co., et al., No. CV-08-667485, Ohio Cmn Pls., Cuyahoga Co.
Rhoda Evans, et al. v. CertainTeed Corp., Los Angeles Department of Water and Power, No. B227075, Calif. App., 2nd Dist.
Gordon Bavaird and others v. Sir Robert McAlpine Ltd. and others, No. PD2948/10, Scottish Sess., Outer House
Goodyear Canada Inc. v. American International Companies (American Home Assurance Company), No. 09-377269, Ontario Super.
LOS ANGELES and OAKLAND, Calif. — Three asbestos personal injury trusts filed complaints Sept. 19 in two California federal bankruptcy courts, alleging that a San Francisco asbestos plaintiffs' attorney has been "submitting unreliable evidence in support of claims for substantial amounts of money" from the trusts (Thorpe Insulation Company Asbestos Settlement Trust v. Michael J. Mandelbrot and Mandelbrot Law Firm, No. 12-02183, C.D. Calif. Bkcy.; J.T. Thorpe Settlement Trust v. Michael J. Mandelbrot and Mandelbrot Law Firm, No. 12-02182, C.D. Calif. Bkcy.; Western Asbestos Settlement Trust v. Michael J. Mandelbrot and Mandelbrot Law Firm, No. 12-04190, N.D. Calif. Bkcy.).
(Thorpe Insulation Company Asbestos Settlement Trust's complaint available. Document #48-121022-003C.)
Thorpe Insulation Co. filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in 2007 in the U.S. Bankruptcy Court for the Central District of California. J.T. Thorpe Inc. filed a Chapter 11 petition in the same court in 2002. Thorpe Insulation's plan of reorganization pursuant to Section 524(g) of the Bankruptcy Code was confirmed in 2010, and J.T. Thorpe's plan was confirmed in 2006. Western Asbestos Co. filed for bankruptcy in 2002 in the Northern District of California Bankruptcy Court, and its plan was confirmed in 2004.
Each company's reorganization plan established a trust under Section 524(g) containing millions of dollars contributed by the companies and their insurers for the payment of claims of present and future asbestos personal injury claimants.
In their nearly identical complaints, the three trusts say that, based on their investigation of attorney Michael J. Mandelbrot and his firm, they believe that Mandelbrot may have submitted fraudulent information to the trusts. In order to continue the investigation, the complaints seek "entry of a declaratory judgment confirming that the [trusts'] Investigation to determine whether Defendants have engaged in a pattern or practice of submitting unreliable information to the [trusts] is authorized by law and appropriate under the circumstances."
The trusts say that because Mandelbrot "may have engaged in a pattern or practice of submitting questionable evidence" to the trusts, the investigation should continue. In one of the examples listed by the trusts of Mandelbrot's practice of providing questionable evidence, the trusts allege that he submitted a claim stating that a client with malignant mesothelioma is still alive even though the diagnosis was made 20 years ago for a malignancy that is almost always fatal within a few years. The trusts say that Mandelbrot insists that there are no current medical reports for the claim.
Mandelbrot also submitted detailed evidence of asbestos exposures that were not claimed in litigation documents and were written by people with "questionable" ability to provide so much detail, such as a grandchild or niece of the exposed decedent, the trusts say.
In addition, the trusts say, Mandelbrot submitted "numerous claims based upon claimants' alleged exposure to asbestos while working in shipyards, following claimants' alleged disembarkation from a United States Naval vessel, which claims are facially implausible and not supported by reliable evidence." He also submitted "improbable evidence that nurses, aircraft mechanics or military police were engaged in the specialized labor of working with boilers, and when questioned, claiming that there are no underlying litigation documents even though existing litigation documents conflict with these claims."
The trusts say that the evidence also shows that Mandelbrot submitted evidence that contradicts previous litigation documents and prosecuted at least one claim against two trusts based on inconsistent evidence.
The trusts say that Mandelbrot has opposed the trusts' investigation from the beginning and has wasted assets of the estates in doing so. Earlier this year, the Bankruptcy Court in J.T. Thorpe's case entered orders over Mandelbrot's objections permitting the J.T. Thorpe trust to examine eight Mandelbrot claimants and his former employee. The trusts say that the former employee's testimony "did not support any of Mandelbrot's contentions and claims and heightened all of the Trusts' concerns that are central to this Investigation."
The trusts say that evidence from the investigation, combined with Mandelbrot's refusal to cooperate and threats to sue the trusts, "have created new and reasonable concerns that [Mandelbrot] may be engaged in a broader pattern and practice of submitting unreliable evidence that could affect an even greater number of claims submitted . . . than originally suspected."
The trusts say that Mandelbrot has submitted approximately 2,690 claims to the Western Trust on behalf of claimants, approximately 2,560 claims to the J.T. Thorpe Trust and approximately 670 claims to the Thorpe Insulation Trust.
The trusts say that, based on the evidence uncovered by their investigation, they are required by the respective reorganization plans, trust distribution procedures and confirmation orders in their cases to conduct an audit of all present, and maybe even past, claims submitted by Mandelbrot. The trusts say that they plan to file motions soon in the adversary proceedings seeking court instructions for the audit and the ongoing investigation.
"As the result of [Mandelbrot's] efforts to obstruct the Investigation, the [trusts'] review of the Mandelbrot Claims has become unnecessarily difficult, burdensome and expensive, to the detriment of holders of valid claims," the trusts say. "The [trusts seek] confirmation of [their] authority to conduct this Investigation notwithstanding Mandelbrot's threats and other relief as required to avoid further delay and expense and to conduct the Investigation in a manner that will allow the [trusts] to conserve [their] resources for the benefit of all claimants holding valid claims."
On Oct. 16, the trusts filed motions seeking authorization to continue, pending resolution of the adversary action, to process and pay claims filed by Mandelbrot and his firm that are "confirmed to be valid in accordance with additional claim evaluation criteria" described in the motions.
(Thorpe Insulation Company Asbestos Settlement Trust's motion available. Document #48-121022-033M.)
"The Trust has consulted with its Trust Advisory Committee and Futures Representative who concur that, notwithstanding the . . . serious circumstances and the need to continue and complete the investigation, some portion of claimants represented by Mandelbrot have valid claims and are entitled to compensation, that these claims can be identified through proper administration of the additional evaluation criteria that the Trust proposes to follow, and that paying them compensation as specified by the Trust Distribution Procedures is in the best interests of all beneficiaries and will not deleteriously effect the legitimate interests of present and future claimants not represented by Mandelbrot," the trusts say.
The trusts are represented by Eve H. Karasik and Gabriel I. Glazer of Stutman, Treister & Glatt in Los Angeles and Michael E. Molland, Benjamin P. Smith and Aaron S. Dutra of Morgan, Lewis & Bockius in San Francisco.
CHARLOTTE, N.C. — A North Carolina federal bankruptcy judge on Oct. 16 granted a request by the asbestos claimants' committee in Garlock Sealing Technologies LLC's Chapter 11 case to intervene in an adversary action filed by Garlock alleging that the company was defrauded by attorneys representing a mesothelioma victim. Garlock had opposed the request, saying that the committee had no statutory right to intervene (Garlock Sealing Technologies, LLC, et al. v. Chandler, et al., No. 12-03137, W.D. N.C. Bkcy.; See September 2012, Page 18).
(Order available. Document #48-121022-030R.)
Garlock, Garrison Litigation Management Group and The Anchor Packing Co. (collectively, Garlock) filed for protection under Chapter 11 of the U.S. Bankruptcy Code in 2010 in the U.S. Bankruptcy Court for the Western District of North Carolina due to an estimated 100,000 asbestos personal injury claims — including about 5,000 mesothelioma claims — pending against the companies.
In 2008, John A. Phillips and his wife sued Garlock and other companies in the Harris County, Texas, District Court, alleging that Phillips contracted mesothelioma because of asbestos fibers that he breathed into his lungs as a teenager while cutting gaskets from gasket sheet material manufactured by Garlock and Johns-Manville Corp. Phillips' attorneys, Troy D. Chandler, Charles D. Finley and Samantha Flores of Williams Kherkher Hart Boundas in Houston, said Phillips' mesothelioma was caused by a rare type of asbestos called crocidolite that was contained in Garlock's and Johns-Manville's products. The case ended in a settlement.
On June 4, 2012, Garlock sued the attorneys and law firm, saying they committed fraud in order to boost the amount of money they could receive from settling Phillips' case. Garlock alleges that at the same time the attorneys were suing Garlock, they were pursuing claims for Phillips in the bankruptcy case of ASARCO LLC and related entities that manufactured pipes that also contained crocidolite. Garlock says it recently acquired ballots that were cast in ASARCO's bankruptcy case showing that Phillips' attorneys verified that he had been exposed to ASARCO's products.
Garlock says that when it requested in discovery in Phillips' case that his attorneys disclose any other exposures to asbestos, the attorneys repeatedly signed discovery responses concealing the exposures that were the basis for their claims in ASARCO's bankruptcy, even though the attorneys were legally obligated to disclose the exposures.
In their answer to the complaint, the attorneys say that no fraud was involved in Phillips' case because Garlock's asbestos-containing gaskets caused his disease, not pipes made by an ASARCO affiliate. The attorneys say that Garlock fails in its allegation that a ballot cast on Phillips' behalf on a joint plan of reorganization for ASARCO and two subsidiaries, CAPCO Pipe Co. Inc. and Lake Asbestos of Quebec (LAQ), proves that the attorneys knew — but concealed in discovery — that CAPCO pipe caused Phillips' disease.
The attorneys and the Official Committee of Asbestos Personal Injury Claimants in Garlock's case, which moved to intervene, accuse Garlock of trying "to keep the settlement it paid Mr. and Mrs. Phillips from establishing an important benchmark in its upcoming Estimation Trial" in the Bankruptcy Court to determine Garlock's asbestos liability.
The committee said that Garlock's claims are part of its overall scheme to show that its future asbestos liability cannot be based on past settlements because the settlements were inflated by attorneys and plaintiffs who withheld and concealed asbestos exposure information.
On Oct. 1, Garlock filed a brief in opposition to the committee's bid to intervene, saying that its complaint has nothing to do with Garlock's estimation proceeding. Garlock said that the committee is wrongly attempting to turn the fraud complaint into a "test case" for its approach to estimating Garlock's asbestos liability and that the only question raised in the complaint is whether the defendants committed fraud by intentionally concealing evidence of Phillips' exposure to asbestos-containing products.
(Garlock's opposition to motion to intervene available. Document #48-121022-004B.)
"The Debtors have made it clear to the Committee and to this Court that their estimation case seeks to estimate the allowed amount of present and future mesothelioma claims, and thus, does not require nor build upon allegations or proof of the misconduct of plaintiffs or their attorneys in past claims," Garlock said. "Thus the Committee is simply incorrect when it contends that Garlock's suit to recover damages from Defendants for the bankruptcy estate is an attempt to make any 'broader issues' about misconduct in the asbestos trust system 'central to the estimation proceeding.'"
Garlock asked that the committee's bid to intervene be rejected by the Bankruptcy Court because, according to Fourth Circuit U.S. Court of Appeals case law, Section 1109(b) of the Bankruptcy Code does not give the committee the right to intervene. Garlock added that allowing the committee to intervene "would increase the costs to the Estate in a case that will be adequately defended by the only real party in interest, the Defendants."
Garlock said that if the committee were allowed to intervene, it would take over the defense of the case, and then Garlock would be paying for the defense of the parties that it sued. "Such a result would not only be injurious to the Estate but contrary to the purpose of bringing an action to recover damages for the Estate," Garlock said.
Also on Oct. 1, the defendants filed their response to the committee's motion to intervene, stating only that they had no objection to the proposed intervention.
(Defendants' response to motion to intervene available. Document #48-121022-005X.)
But Garlock said that the committee has no real interest in the case and that its motion "shows that the Committee's true aim is to protect plaintiffs' attorneys and not plaintiffs. It would make more sense for the Committee to intervene on behalf of the Debtors than to try and protect plaintiffs' lawyers who have defrauded the Estate."
In his two-page order, Bankruptcy Judge George R. Hodges approved the committee's intervention as a party defendant in the case. He gave the committee 30 days to file a pleading "articulating its interests" in the proceeding.
Garlock is represented by Garland S. Cassada, D. Blaine Sanders, Jonathan C. Krisko and Richard C. Worf Jr. of Robinson Bradshaw & Hinson in Charlotte.
The attorneys and law firm are represented by Raymond E. Owens Jr., Sara W. Higgins and Leigh Braslow Altman of Higgins & Owens in Charlotte.
The committee is represented by Trevor W. Swett III and Jeffrey A. Liesemer of Caplin & Drysdale in Washington, D.C., Elihu Inselbuch of the firm's New York office and Travis W. Moon of Moon Wright & Houston in Charlotte.
SAN FRANCISCO — A California federal judge on Oct. 9 overruled all objections filed on appeal by 13 insurance companies to Plant Insulation Co.'s Chapter 11 plan of reorganization and affirmed confirmation of the plan, finding that the bankruptcy judge did not err in approving the reorganization (In re Plant Insulation Co. [Fireman's Fund Insurance Company, et al., v. Plant Insulation Co., et al.], No. 12-1887, N.D. Calif.; 2012 U.S. Dist. LEXIS 146071 Shepardize; See July 2012, Page 13).
(Order denying appeal from confirmation available. Document #48-121022-012R.)
On the same day, the judge granted Plant's motions to dismiss insurers' appeals of the debtor's post-confirmation settlement with three insurance companies that will provide $69 million to the asbestos personal injury trust established by Plant's reorganization (In re Plant Insulation Co. [ACE Fire Underwriters Insurance Co. and One Beacon Insurance Co., et al., v. Plant Insulation Co., et al.], No. 12-03793, N.D. Calif.; See September 2012, Page 19).
(Order granting motions to dismiss available. Document #48-121022-013R.)
6,244 Asbestos Claimants
Plant filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in 2009 in the U.S. Bankruptcy Court for the Northern District of California due to thousands of pending asbestos personal injury claims. Plant filed a reorganization plan, which was opposed by insurance companies that are defendants in a declaratory relief action filed by Plant in 2006 in the San Francisco County Superior Court to determine what coverage remains on policies issued to Plant for asbestos personal injury claims. Other insurers have settled their coverage disputes with Plant, and their settlement payments totaling more than $130 million will help fund the trust set up by Plant's plan under Section 524(g) of the Bankruptcy Code to pay current and future asbestos personal injury claims.
Bankruptcy Judge Thomas E. Carlson held a plan confirmation hearing in December 2011, heard closing arguments on Jan. 12 and issued an opinion on March 15 on three key issues and further findings of fact and conclusions of law, overruling the "myriad" objections filed by the insurers. The bankruptcy judge held that Plant's plan was proposed in good faith because its merger with affiliated company Bayside Insulation and Construction Inc. is necessary for the plan's success. The bankruptcy judge found that a plan injunction barring the assertion of contribution claims against the settling insurers also is necessary to the success of the plan and is consistent with the Bankruptcy Code, the U.S. Constitution and principles of equity.
On April 3, after Plant had filed an amended and restated second amended reorganization plan, the bankruptcy judge issued his confirmation order, which provides for the establishment of the Section 524(g) asbestos trust and authorizes the Bayside merger agreement, under which Plant will merge into Bayside, with reorganized Bayside the surviving corporation. Under the order, the bankruptcy judge issued a channeling injunction, a settling asbestos insurer injunction and an asbestos insurer injunction pursuant to Sections 524(g) and 105(a).
Plant's "open system" reorganization plan provides two ways for compensating asbestos injury claimants: from the Section 524(g) trust and by preserving claimants' right to file tort actions against Plant and nonsettling insurers. All 6,244 asbestos injury claimants, who collectively assert claims totaling $1.35 billion, voted to approve the plan, and nonsettling insurers, who allege that Plant owes them $95.3 million in defense and indemnity costs, unanimously rejected it.
The following insurers appealed the confirmation order to the U.S. District Court for the Northern District of California: Fireman's Fund Insurance Co.; American Automobile Insurance Co.; OneBeacon Insurance Co.; United States Fidelity and Guaranty Co.; United States Fire Insurance Co.; ACE Fire Underwriters Insurance Co.; ACE Property and Casualty Insurance Co.; Safety National Casualty Corp.; American Home Assurance Co.; Granite State Insurance Co.; The Insurance Company of the State of Pennsylvania; Insurance Company of the West; and Transport Insurance Co.
While the nonsettling insurers said that the reorganization plan illegally sets up a sham company that will be funded by the asbestos trust, plan proponents Plant, the Official Committee of Unsecured Creditors and the future claimants' representative (FCR) countered that the insurers were merely seeking to continue to avoid asbestos injury claims in the tort system that had been put on hold by the bankruptcy.
Judge Richard Seeborg rejected all of the insurers' arguments, finding that the plan's proposed injunctive relief for Plant, Bayside and the settling insurers does not violate the nonsettling insurers' rights under the U.S. Constitution, exceed the authorization provided by the Bankruptcy Code, interfere with the nonsettling insurers' common-law and contractual rights under state law or contravene general principles of equity.
The judge further found that the bankruptcy judge correctly held that the reorganization plan meets the specific requirements of Section 524(g), was filed in good faith as required by Section 1129(a) of the Bankruptcy Code and meets the "best-interest-of-creditors" test.
Regarding the nonsettling insurers' primary objection that the plan's injunction bars their equitable contribution and contract claims against the settling insurers, Judge Seeborg said the injunction does not infringe the insurer's rights under the Fifth Amendment to and due process clause of the Constitution because the contract rights and claims for equitable contributions from settling insurers do not qualify as "property interests."
"The Ninth Circuit [U.S. Court of Appeals] has explained that claims do not vest, and hence do not rise to the level of a constitutionally-protected property interest, 'until a final reviewable judgment is obtained,'" the judge said, citing In re Consol. U.S. Atmospheric Testing Litig. (820 F.2d 982, 988 Shepardize [9th Cir. 1987]) and Bowers v. Whitman (671 F.3d 905, 914 Shepardize [9th Cir. 2012]). "Here, the Non-Settling Insurers have no accrued rights in their equitable contribution claims, as they can point to no final judgment establishing such rights. Instead, their claims remain unrealized, and contingent upon a whole host of outcomes in future litigation."
Judge Seeborg also said that the reorganization plan's bar against the assertion of equitable contribution claims by the nonsettling insurers does not exceed the scope of relief authorized under the Bankruptcy Code. The insurers "fail to identify any authority for that argument beyond their own particular reading of the Code. A closer examination of § 524(g) reveals it is not, in the final analysis, supportive of their position," the judge said.
Judge Seeborg also found that there was no clear error in the bankruptcy judge's determination that Plant's $69 million post-confirmation settlement with Fireman's Fund, American Automobile and National Surety Corp., known as the Allianz companies, was consummated for value and in good faith.
Further, the judge agreed with Plant that the consolidated appeals of the settlement approval filed by ACE Fire and One Beacon should be dismissed because they are statutorily moot under Section 363(m) of the Bankruptcy Code since the insurers did not seek a stay of the settlement pending appeal and the first $10 million of the deal has been paid by the Allianz companies and spent by Plant.
Judge Seeborg rejected ACE Fire and One Beacon's argument that Section 363(m) cannot be invoked because a finding of statutory mootness would insulate from appellate review the relief afforded by Section 524(g) under the terms of the reorganization plan.
"It is self-serving and far too facile to maintain, on the one hand, no procedural stay was required because the Bankruptcy Court exceeded its authority, and on the other, that in the absence of a stay, appellate review of the confirmation order has been prejudiced," the judge said. "Appellants made no effort whatsoever to obtain a stay, and now fail to acknowledge that their current predicament is one of their own making."
On Oct. 15, the nonsettling insurers in the District Court case filed an emergency motion for a stay of the judge's plan confirmation affirmance orders pending appeal to the Ninth Circuit. Alternatively, the insurers seek an interim stay of the orders for 30 days or until the Ninth Circuit rules on a stay request in that court.
(Memorandum in support of emergency motion for stay available. Document #48-121022-022B.)
The insurers say that if a stay is not granted, Plant has indicated that it will take steps to consummate the plan by, among other things, merging Plant and Bayside 31 days after the confirmation affirmance orders as authorized by the reorganization plan.
"The Plan Proponents have made it clear that they will argue that the merger and any claim distributions will render any appeal equitably moot," the insurers say. "Plan Proponents have indeed admitted their intent to try to immunize the Plan from appellate review."
The insurers say that the stay should be granted because the issues on appeal are "of great importance," "novel" and "matters of first impression." They say that the affirmance orders "approve an unprecedented § 524(g) plan that not only sends Appellants and thousands of claims back into the overburdened California state tort system, but also enjoins Appellants from asserting their Contribution Rights in connection with the defense of such claims."
Plant is represented by Peter J. Benvenutti and Ryan T. Routh of Jones Day in San Francisco. The Official Committee of Unsecured Creditors is represented by Michael H. Ahrens and Steven B. Sacks of Sheppard, Mullin, Richter & Hampton in San Francisco and Peter Van N. Lockwood of Caplin & Drysdale in Washington, D.C. The FCR is represented by Gary S. Fergus of Fergus Law Office in San Francisco.
The insurers are represented by Mark D. Plevin and M. Kay Martin of Crowell & Moring in San Francisco; Cynthia L. Kendrick, Leslie A. Davis and Tacie H. Yoon of Crowell & Moring in Washington; Lynn H. Murray of Grippo & Elden in Chicago; Andrew T. Frankel, Kathrine A. McLendon and Craig S. Waldman of Simpson Thacher & Bartlett in New York; Deborah L. Stein of Simpson Thacher in Los Angeles; Philip A. O'Connell Jr. of SNR Denton US in Boston; Robert B. Millner of SNR Denton in Chicago; Paul E.B. Glad and Joel T. Muchmore of SNR Denton in San Francisco; Richard Goetz and Jaclyn Blankenship of O'Melveny & Myers in Los Angeles; Patricia B. Hsue of O'Melveny & Myers in San Francisco; Tancred V. Schiavoni of O'Melveny & Myers in New York; Alan S. Berman of The Berman Law Group in Woodland Hills, Calif.; Lawrence A. Tabb of Musick, Peeler & Garrett in Los Angeles; Chad A. Westfall of Musick, Peeler & Garrett in San Francisco; Philip R. Matthews and Ray L. Wong of Duane Morris in San Francisco; Jeff Carlisle, Randall J. Peters, David K. Morrison and Rosemary H. Do of Lynberg & Watkins in Los Angeles; Michael S. Davis of Zeichner Ellman & Krause in New York; and Valerie A. Moore and Eugenie Gifford Baumann of Haight, Brown & Bonesteel in Los Angeles.
documents available: Order affirming plan confirmation. Document #48-121022-014R.
Plan proponents' appellee brief. Document #48-120723-023B.
Insurers' joint appellant brief. Document #48-120625-005B.
Bankruptcy Court's April 3 order. Document #48-120423-008R.
Amended and restated second amended plan of reorganization. Document #48-120423-009X.
Bankruptcy Court's March 15 opinion. Document #48-120326-032Z.
Additional findings of fact and conclusions of law. Document #48-120326-033X.)
PITTSBURGH — The Pennsylvania federal bankruptcy judge overseeing the Chapter 11 case of Pittsburgh Corning Corp. (PCC) was correct when she said at a hearing that she was "inclined" to believe that two insurance companies no longer have standing to object to PCC's plan of reorganization, so their objections should be overruled and the plan confirmed, the debtor says in a Sept. 28 brief and report on plan objections (In re: Pittsburgh Corning Corporation, No. 00-22876, W.D. Pa. Bkcy.; See September 2012, Page 7).
The bankruptcy judge held a hearing Oct. 10 on the objections and continued the hearing until Oct. 22. She then scheduled a confirmation hearing for PCC's often-amended plan for Nov. 1.
PCC filed a voluntary petition in the U.S. Bankruptcy Court for the Western District of Pennsylvania in 2000 for relief under Chapter 11 of the U.S. Bankruptcy Code. Following denial of plan confirmation in 2006, the company amended the plan to resolve objections filed by dozens of insurance companies. But in 2011, Bankruptcy Judge Judith K. Fitzgerald again declined to confirm the plan, holding that while it meets most U.S. Bankruptcy Code provisions, its channeling injunction under Section 524(g) of the Bankruptcy Code is improper and the plan is not insurance neutral.
PCC has modified the plan several times since, making changes to the Section 524(g) injunction and parts of the plan dealing with insurance coverage, including a judgment reduction provision to protect the rights of nonsettling insurance companies. After several rounds of briefing on PCC's revisions, the company filed the latest version of the plan on Aug. 17, 2012, and the bankruptcy judge on Aug. 27 ordered PCC to file a black-lined disclosure statement and plan documents, a summary of the disclosure statement, a summary of the amended plan, a summary of significant changes to the disclosure statement and plan and a chart of objections to the plan still pending and plan provisions addressing the objections.
The only insurers that continue to object to the plan are Mt. McKinley Insurance Co. and Everest Reinsurance Co. (collectively, Mt. McKinley). PCC says in its summary of plan amendments that all of the insurers' and bankruptcy judge's concerns have been answered by the plan revisions. As part of the changes, the plan's asbestos permanent channeling injunction was revised to clarify that the injunction does not protect PCC shareholders PPG Industries Inc. and Corning Inc. from asbestos claims that are not based on the liability or conduct of PCC, the debtor says.
Mt. McKinley counters that the plan still cannot be confirmed because it impairs the insurers' rights in Mt. McKinley's policies issued to nondebtors PPG and Corning and includes many findings that are not required to confirm the plan and that impair Mt. McKinley's defenses to coverage while enhancing PPG and Corning's ability to recover their contributions to the plan's asbestos personal injury trust.
In reply, PCC says that its reorganization plan hasn't changed since Bankruptcy Judge Fitzgerald said at a June hearing that the revised plan "preserved the rights of the insurers" and that therefore she was "inclined . . . to think that Mt. McKinley will not have standing," so the insurers' latest objections should be denied.
"The Mt. McKinley Objection has advanced no new theories of law or evidence that demonstrates that Mt. McKinley will suffer a direct and concrete injury as a result of the Plan," PCC says. "Moreover, the few new arguments advanced by the Mt. McKinley Objection are simply wrong."
PCC says that its plan does not impair Mt. McKinley's contract rights or excuse PPG and Corning from their alleged contractual obligations. "All insurance rights of Mt. McKinley and its policyholders are expressly preserved by the Plan," PCC says.
No Standing To Object
PCC also says that arguments of the plan's only other objector, fellow Chapter 11 entity Garlock Sealing Technologies LLC, should be rejected as well. As the bankruptcy judge held in her 2011 plan confirmation ruling, Garlock lacks standing to object to confirmation of PCC's plan, and even if it has standing, its objections have no substantive merit, PCC says.
(Response to Garlock's objections available. Document #48-121022-017B.)
"Nothing in the Plan alters any of the bases for the Court's previous rulings on Garlock's objections; as such, there is no need for this Court to revisit its ruling as to Garlock in its 2011 Memorandum Opinion, or to give any further consideration to Garlock's Objection," the debtor argues. "The Court's previous rulings on Garlock's standing and the merits of its objections should remain intact, and the Plan should be confirmed over Garlock's Objection."
PCC is represented by James J. Restivo Jr., Douglas A. Cameron, Andrew J. Muha and David Ziegler of Reed Smith in Pittsburgh.
Mt. McKinley and Everest are represented by James R. Walker of Buchanan Ingersoll & Rooney in Pittsburgh, Fred L. Alvarez of Walker Wilcox Matousek in Chicago and Tony L. Draper and Charles B. Walther of Walker Wilcox Matousek in Houston.
Garlock is represented by Patrick K. Cavanaugh of Del Sole Cavanaugh Stroyd in Pittsburgh and Garland S. Cassada and Richard C. Worf Jr. of Robinson Bradshaw & Hinson in Charlotte, N.C.
documents available: Amended reorganization plan. Document #48-120924-039X.
Plan summary. Document #48-120924-041X.
Plan documents summary. Document #48-120924-042X.
Summary of plan amendments. Document #48-120924-036B.
Insurers' objections. Document #48-120924-037B.
Garlock's objection. Document #48-120924-038B.)
SAN FRANCISCO — Plant Insulation Co. on Oct. 17 sought approval in a California federal bankruptcy court of a settlement with two insurance companies that will provide at least $70 million over nine years to a trust established by Plant's Chapter 11 plan of reorganization to pay asbestos personal injury claims and end all disputes between Plant and the insurers, who have long opposed the company (In re Plant Insulation Co., No. 09-31347, N.D. Calif. Bkcy.).
(Motion to approve settlement available. Document #48-121022-032M.)
Plant filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in 2009 in the U.S. Bankruptcy Court for the Northern District of California, and Bankruptcy Judge Thomas E. Carlson confirmed Plant's plan of reorganization in separate rulings in March and April. The confirmation rulings were appealed by insurance companies — including ACE Fire Underwriters Insurance Co. and ACE Property and Casualty Insurance Co. (collectively, ACE) — that are defendants in a declaratory relief action filed by Plant in 2006 in a California court to determine what coverage remains on policies issued to Plant for asbestos personal injury claims. On Oct. 9, U.S. Judge Richard Seeborg of the Northern District of California overruled all of the insurers' objections and affirmed confirmation of the plan (See story, this issue).
Other insurers have settled their coverage disputes with Plant, and their settlement payments totaling more than $130 million will help fund the trust set up by Plant's plan under Section 524(g) of the Bankruptcy Code to pay current and future asbestos personal injury claims. The latest settlement, which ACE also opposed, was for $69 million with Fireman's Fund Insurance Co., American Automobile Insurance Co. and National Surety Corp., known as the Allianz companies.
Plant now says it has reached a settlement with ACE that will increase the total amount of money available for asbestos injury claimants through Plant's trust to $200 million. Under terms of the settlement, which were still being finalized on the date of Plant's motion, the insurer will pay $53 million into an escrow fund, and once the plan confirmation order becomes final, the escrow fund will be used to purchase a portfolio of short-, medium- and long-term securities.
Plant says that the bond portfolio is expected to provide at least $70 million in structured payments to asbestos trust established under the plan. The portfolio is expected to make payments to the trust for nine years, Plant says. According to Plant, "although the escrow fund shall be funded by ACE upon approval of the settlement, no payments shall be made to the Trust until the order confirming the Plan and issuing the 524(g) injunctions is final and unappealable."
As part of the settlement, Plant says, the company and ACE will cease all litigation against each other in Plant's bankruptcy case and in the declaratory relief action, and ACE will withdraw all proofs of claim filed in the bankruptcy case.
In addition, the settlement is conditioned on several factors, including that the ACE companies are designated as settling asbestos insurers entitled to the protections provided by Section 524(g) under the plan by Oct. 24 and that Plant will sell back to the ACE companies their policies that may be alleged to provide coverage for asbestos claims, Plant says.
Also, the order approving the settlement must include a finding that the ACE companies are good-faith purchasers under Bankruptcy Code Section 363(m), Plant says. According to Plant, the settlement agreement will provide the ACE companies other protections comparable to the protections afforded to the Allianz entities in their settlement agreement.
"The Plan Proponents believe that the Settlement is fair and equitable and in the best interests of the estate and the Debtor's creditors. The settlement will help fund the 524(g) trust to be created under the Plan for the benefit of the Debtor's present and future asbestos claimants, significantly increasing the amount of settlement consideration available to such a trust," Plant says.
Plant adds that the settlement "will also end litigation on two fronts — in the bankruptcy case and related proceedings and appeals, and in the Declaratory Relief Action — with an insurer that has been one of the lead counsel for the non-settling insurers in this bankruptcy case and in the Declaratory Relief Action."
Plant is represented by Peter J. Benvenutti of Jones Day in San Francisco. ACE is represented by Richard Goetz and Jaclyn Blankenship of O'Melveny & Myers in Los Angeles, Tancred V. Schiavoni of O'Melveny & Myers in New York and Alan S. Berman of The Berman Law Group in Woodland Hills, Calif.
BALTIMORE — Bankrupt contracting company Lloyd E. Mitchell Inc. (LEM), two insurers and a law firm representing 9,000 asbestos personal injury claimants on Sept. 5 requested a Maryland federal bankruptcy court to allow them to implement a confidential settlement so the claimants can be paid and LEM can dismiss its Chapter 11 case, but attorneys representing thousands more claimants say in briefs filed Sept. 20 and 28 that the settlement is not fair because it will exhaust all of LEM's insurance coverage, leaving nothing for nonsettling asbestos claimants (In re: Lloyd E. Mitchell Inc. [Maryland Casualty Company, et al., v. Lloyd E. Mitchell, Inc.], No. 06-13250, D. Md. Bkcy.; See October 2011, Page 8).
motion for relief from stay available. Document #48-121022-009M.
Law Offices of Peter T. Nicholl opposition to joint motion available. Document #48-121022-010B.
Goodman, Meagher & Enoch and Clifford W. Cuniff objection to joint motion available. Document #48-121022-011B.)
LEM is a Maryland corporation that formerly operated a mechanical contracting business in the Baltimore area. Since the company ceased operations in 1976 and liquidated its operating assets, it has been defending against asbestos-related personal injury claims and dealing with insurance and coverage issues relating to the claims.
Two law firms — Law Offices of Peter G. Angelos and Law Offices of Peter T. Nicholl — each represent about 9,000 asbestos personal injury claimants in actions filed in the Baltimore City Circuit Court. Together, the two firms represent 90 percent of the asbestos claims against LEM. Other asbestos claimants are represented by Goodman, Meagher & Enoch LLP (GME) and Clifford W. Cuniff.
Maryland Casualty Co. issued liability insurance policies to LEM that the company says provide coverage for asbestos claims. To resolve coverage disputes, Maryland Casualty filed a lawsuit in 1988 in the Harford County, Md., Circuit Court, seeking a declaration that it had no duty to defend LEM under the Maryland Casualty policies.
Motion To Dismiss
In 2006, with the coverage action pending, LEM filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Maryland.
In 2008, Maryland Casualty filed an amended complaint in the Harford County litigation, seeking declaratory and monetary relief against The Travelers Indemnity Co. and OneBeacon Insurance Co., LEM's other insurers, regarding coverage for asbestos personal injury claims. More parties joined in the Harford County case to preserve and protect their rights, including a class of asbestos personal injury claimants.
In the bankruptcy case, LEM and the Official Committee of Unsecured Creditors filed and withdrew two plans of reorganization, and LEM moved to dismiss the case. The insurers opposed the dismissal, proposed a plan of liquidation for LEM and cross-moved for the appointment of a Chapter 11 trustee.
In May 2010, the parties stipulated to a stay of the motion to dismiss and motion to appoint a trustee, informing the Bankruptcy Court that they were on the verge of an agreement and needed more time to finalize all of the details (See June 2010, Page 24).
Relief From Stay
On Oct. 20, 2010, LEM, Maryland Casualty, Travelers and the asbestos personal injury claimants represented by the Angelos firm filed a motion in the Bankruptcy Court stating that they had reached a settlement that will resolve the more than 9,000 outstanding asbestos claims against LEM filed by the Angelos firm.
The motion sought relief from the automatic stay in the Chapter 11 case so the parties could submit the settlement for approval to the Baltimore City Circuit Court and seek permission to dismiss the claims the parties have against each other in the Harford County action, including the claims for coverage by the settling asbestos claimants.
The parties said that the settlement agreement, whose terms are confidential, also resolves Maryland Casualty's outstanding claims against LEM for reimbursement and breach of an earlier settlement agreement between the parties. In addition, the settlement resolves a number of matters pending in the bankruptcy case, including the motion to dismiss the case, the motion to appoint a trustee and the insurers' proposed plan of liquidation.
According to the motion, the coverage claims represented by the other law firms in the Harford County litigation would not be dismissed with prejudice, and the law firms would be able to seek an adjudication of the coverage issues.
'Equality Of Distribution'
In September 2011, Bankruptcy Judge Nancy V. Alquist granted the motion in part and denied it in part, finding that the state courts were the proper venues to seek approval of the settlement but that it would be unfair to the thousands of other asbestos claimants in the case to allow the Angelos firm claimants to be paid the settlement amounts before the agreement was approved.
The bankruptcy judge said that LEM, the insurers and the Angelos firm made no provision for the nonsettling claimants but instead have agreed to start payments under the insurance policies for only some claimants, "leaving the non-settling claimants to litigate their claims and their coverage and, at the end of the day, hope that some proceeds remain to pay their claims. Such a scenario is antithetical to a process that guarantees fairness and equality of distribution."
Therefore, Bankruptcy Judge Alquist granted relief from the automatic stay so the movants could submit the settlement to the Harford County Circuit Court for approval of the terms of the settlement in the context of the Harford County litigation and to the Baltimore City Circuit Court for approval of the terms and liquidated amounts as to each individual settling claimant.
On Aug. 3, Harford County Circuit Judge William Carr granted a joint motion by LEM, Maryland Casualty and Travelers for approval of the settlement agreement and voluntary dismissal of the settled claims. On Aug. 17, Baltimore City Judge John M. Glynn issued his order approving the settlement.
LEM, the insurers and the Angelos firm now say that because both state courts have approved the settlement, the Bankruptcy Court should lift the automatic stay to permit payment of the agreed settlement amounts to the 9,000 holders of asbestos claims represented by Angelos. The movants say that once the settlement is finalized, Maryland Casualty and Travelers will withdraw their opposition to LEM's pending motion to dismiss this bankruptcy case. They say that if the case is then dismissed, the nonsettling asbestos claimants would be able to return to the tort system to prosecute their claims against LEM.
"As the Harford County Court determined in approving the Settlement Agreement, nothing in the settlement would prejudice the rights of such non-settling claimants to attempt to establish the Debtor's liability through litigation and, if such claimants obtain judgments, to seek to enforce such judgments against any available and applicable insurance," the movants say.
The trouble with that, according to the Nicholl firm, GME and Cuniff, is that it appears that there will be no insurance proceeds remaining once the settlement amount is paid. According to the opposing attorneys, the insurers have stated that the policies issued to LEM have $26 million in aggregate products limits, and $21.4 million of that has been exhausted. Further, the insurers have stated that the amount of the settlement is more than the approximately $4.6 million remaining on the policy limits.
"The Insurers' position that the asbestos-related claims are subject to aggregate limits of liability in the Maryland Casualty policies means that payments authorized by the Settlement Agreement will, if the Insurers are correct, erode the remaining aggregate limits such as to exhaust at least the Maryland Casualty policy and possibly the entirety of LEM's assets," GME and Cuniff say. "Thus, if Insurers prevail on their claims in Harford County that payment of the underlying Asbestos Claims erodes the remaining 'per occurrence' policy limits, certain putative class members — that is, underlying asbestos plaintiffs represented by the Angelos Firm — will receive 100 cents on the dollar for their claims, . . . while others will receive nothing."
The opposing attorneys say that the Bankruptcy Court should not lift the stay because doing so will harm LEM's estate by potentially exhausting its only material asset, the insurance policies that are the subject of the proposed settlement.
Also, the attorneys say, the movants did not disclose the monetary terms of the settlement to the Hartford County court, which improperly approved the agreement nonetheless after finding that a review of the settlement's fairness and adequacy was not required.
LEM is represented by Mark J. Friedman of DLA Piper US in Baltimore. Maryland Casualty is represented by Mark D. Plevin and Leslie A. Davis of Crowell & Moring in Washington, D.C. Travelers is represented by Richard M. Goldberg of Shapiro Sher Guinot & Sandler in Baltimore and David J. Woll and Elisa Alcabes of Simpson Thacher & Bartlett in New York. The Angelos claimants are represented by Armand J. Volta Jr. and R. Bruce McElhone of Law Offices of Peter G. Angelos in Baltimore.
The Nicholl claimants are represented by James Sottile IV of Zuckerman Spaeder in Washington, D.C., P. Andrew Torrez of Zuckerman Spaeder in Baltimore and William C. Burgy of Law Offices of Peter T. Nicholl in Baltimore. The GME/Cuniff claimants are represented by John Amato IV of GME in Baltimore and Clifford W. Cuniff in Annapolis, Md.
(Additional document available. Movants' joint reply in support of motion for relief from stay. Document #48-121022-021B.)
PITTSBURGH — Global Industrial Technologies Inc. (GIT) says in a Sept. 20 motion filed in a Pennsylvania federal bankruptcy court that it has reached a third settlement with insurance companies that resolves objections to GIT's Chapter 11 plan of reorganization and provides $900,000 to silica personal injury claimants (In re: Global Industrial Technologies, Inc., et al., No. 02-21626, W.D. Pa. Bkcy.).
GIT and affiliates filed for Chapter 11 bankruptcy protection in 2002 in the U.S. Bankruptcy Court for the Western District of Pennsylvania. The Bankruptcy Court confirmed a reorganization plan for GIT that includes two trusts to address asbestos and silica-related liabilities.
A number of insurance companies funding the trusts objected to the reorganization plan. The Bankruptcy Court dismissed the objections, and the U.S. District Court for the Western District of Pennsylvania affirmed the Bankruptcy Court's confirmation of the plan and its determination that the insurers lacked standing to challenge the plan.
The insurers appealed to the Third Circuit U.S. Court of Appeals, which in a divided en banc opinion in 2011 held that the insurers do have standing to challenge the reorganization plan. The panel vacated the District Court's order affirming confirmation of the plan and instructed the court to remand the case to the Bankruptcy Court for further proceedings consistent with its opinion (In re Global Indus. Techs., Inc., et al. [2011 U.S. App. LEXIS 9109, *43 Shepardize (3d Cir. May 4, 2011)]; See May 2011, Page 4).
On remand, Bankruptcy Judge Judith K. Fitzgerald ordered that the parties conduct discovery and participate in mediation in an effort to resolve the insurers' objections before the plan confirmation hearing.
Silica Exposure Claims
One of the GIT affiliates that is part of the bankruptcy case is A.P. Green Industries Inc., formerly known as A.P. Green Refractories Co. (APG), which purchased insurance policies from 1986 to 2002 from certain insurers. While GIT believes that the policies provide coverage for personal injury claims based on exposure to products manufactured by APG, the insurers disputed whether coverage was available under the policies.
GIT's reorganization plan includes establishment of the APG Silica Trust to resolve personal injury claims based on exposure to silica or silica-containing products of APG and its subsidiaries. The trust is to be funded in part by the assignment of insurance rights, which the insurers objected to.
On Sept. 14, 2012, GIT sought approval of settlements with two groups of insurers — Hartford Accident and Indemnity Co. and affiliates and First State Insurance Co. (collectively, Hartford) and six insurers affiliated with Chartis Inc. — under which the insurance companies will pay $2.9 million to the APG Silica Trust to buy back the policies and be designated as GIT protected parties in the debtors' reorganization plan (See September 2012, Page 15).
GIT says that under a third settlement with Century Indemnity Co., as successor to CIGNA Specialty Insurance Co., formerly known as California Union Insurance Co., and Westchester Fire Insurance Co., for itself and International Insurance Co., now known as TIG Insurance Co., for policies issued between 1986 and 1997, the insurers will pay $900,000 to the APG Silica Trust.
Under the settlement, Century and Westchester will repurchase the interests of APG in the policies and obtain the standard buyer protections afforded by Section 363 of the Bankruptcy Code, GIT says. The settlement releases the insurers from asbestos- and silica-related liability claims and demands and other related claims, GIT says. In addition, the insurers will be entitled to all of the benefits of the APG Silica Trust channeling injunction as GIT protected parties.
GIT is represented by James J. Restivo Jr. and Andrew J. Muha of Reed Smith in Pittsburgh.
documents available:Motion to approve Hartford settlement. Document #48-120924-020M.
Hartford settlement agreement. Document #48-120924-022P.
Motion to approve Chartis settlement. Document #48-120924-021M.
Chartis settlement agreement. Document #48-120924-023P.)
CHARLOTTE, N.C. — Garlock Sealing Technologies LLC's attempt to have a law firm and its clients held in contempt for not responding to a discovery questionnaire was denied Oct. 16 by a North Carolina federal bankruptcy judge (In re: Garlock Sealing Technologies, et al., No. 10-31607, W.D. N.C. Bkcy.; See September 2012, Page 13).
(Order available. Document #48-121022-031R.)
Garlock, Garrison Litigation Management Group and The Anchor Packing Co. (collectively, Garlock) filed for protection under Chapter 11 of the U.S. Bankruptcy Code in 2010 in the U.S. Bankruptcy Court for the Western District of North Carolina. A trial to estimate Garlock's asbestos liability is scheduled to begin Dec. 3.
Bankruptcy Judge George R. Hodges authorized Garlock to send questionnaires to 5,800 mesothelioma claimants to gather information for the estimation proceeding. When some claimants failed to provide completed questionnaires, Garlock asked the bankruptcy judge to compel them to respond. In granting the motion to compel, Bankruptcy Judge Hodges required the claimants to complete the questionnaire or submit in writing why "they do not fall within the intended scope of the Questionnaire process" or "why they otherwise should not be required to complete the Questionnaire."
In August, Garlock moved for an order to show cause why Dallas law firm Baron & Budd and its clients should not be held in contempt for refusing to comply with the order to compel compliance with the personal injury questionnaire. Garlock said that, in direct violation of the order, the firm and its clients did not complete the questionnaire or submit in writing any reasons why they contended that they did not have to provide the information requested.
Garlock called the law firm and clients' actions "especially egregious" and said the firm and clients should be sanctioned for impairing Garlock's ability to prepare its case for the liability estimation proceeding.
On Sept. 27, the Official Committee of Asbestos Personal Injury Claimants in Garlock's case said that the debtor's bid to have the law firm and its clients held in contempt was just another attempt by Garlock to delay the estimation proceeding for its aggregate liability for mesothelioma claims.
(Official Committee's opposition to motion for order to show cause available. Document #48-121022-006B.)
The committee said that Garlock's motion was "a continuation of Debtors' attempts to transform the questionnaire process into an attack on individual claims, in spite of this Court's pronouncements that it will not determine any such claims in the estimation and that the estimation proceeding will instead address the aggregate liability."
Garlock's motion failed to meet the high bar for a finding of contempt, which is only used as a last resort in extreme situations, the committee said. In addition, the committee said, the "perfunctory" motion did not meet the basic requirement of setting forth what relief Garlock sought and did not provide legal support for Garlock's assumption that the questionnaire is enforceable against nonparties that Garlock did not subpoena.
"Most important of all, in view of the massive quantity of information the Debtors have gathered through their questionnaire, supplemental questionnaires, and other means, the Motion fails utterly to demonstrate any material harm to the Debtors from the non-participation of Baron & Budd's clients in the questionnaire process," the committee said.
The committee argued that Garlock's motion could raise a wide range of complex legal issues, such as the question of personal jurisdiction over a law firm and its clients in a bankruptcy proceeding where they have not filed proofs of claim.
"To initiate the show-cause proceedings requested by the Motion would divert the attention of this Court and the parties at a crucial juncture from what really matters in the aggregate estimation," the committee said. "Permitting such a sideshow would be a large step backward, prejudicing the interests of compliant mesothelioma claimants and the asbestos constituency at large and impeding the progress of the estimation and the overall reorganization effort for no good reason."
Bankruptcy Judge Hodges said that he held a hearing on the motion on Oct. 11 and that he was denying the motion for the reasons stated on the record.
The committee is represented by Trevor W. Swett III and Kevin C. Maclay of Caplin & Drysdale in Washington, D.C., Elihu Inselbuch of the firm's New York office and Travis W. Moon of Moon Wright & Houston in Charlotte.
Garlock is represented by Garland S. Cassada, Jonathan C. Krisko, Richard C. Worf Jr. and Ty E. Shaffer of Robinson Bradshaw & Hinson in Charlotte.
(Additional document available. Garlock's motion for order to show cause. Document #48-120924-009M.)
WILMINGTON, Del. –– Specialty Products Holding Corp. and Bondex International Inc. can estimate at zero the asbestos personal injury claims of 230 claimants in the companies' joint bankruptcy case who failed to submit a court-approved discovery questionnaire for the debtors' asbestos liability estimation proceeding, a federal bankruptcy judge in Delaware held Oct. 16 (In re: Specialty Products Holding Corp., et al., No. 10-11780, D. Del. Bkcy.; See September 2012, Page 14).
(Order available. Document #48-121022-029R.)
However, the debtors cannot estimate at zero the claims of 262 claimants who submitted incomplete questionnaires, and no claimant will be denied the chance to vote on a plan of reorganization based on any failure to submit questionnaire information, as the debtors requested, the bankruptcy judge said.
Specialty Products and subsidiary Bondex filed voluntary petitions for Chapter 11 bankruptcy 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. The debtors filed several discovery motions under Federal Rule of Bankruptcy Procedure 2004 for information needed to prepare an estimation of their asbestos liability.
In July 2011, Bankruptcy Judge Judith K. Fitzgerald partially approved one of the motions, allowing the debtors to use a personal injury questionnaire (PIQ) to gather information from mesothelioma claimants in their case. The bankruptcy judge directed all mesothelioma claimants to provide information about their disease, exposure to the debtors' products, litigation against the debtors, claims against other companies whose products contained asbestos and claims against other bankruptcy trusts. Claimants must state in the questionnaire whether their claims are pending, were dismissed or settled and when any payments were made to the claimant but not the amount of the payments.
In December, the debtors filed their first motion seeking to compel compliance with the PIQ order, stating that of the 2,150 questionnaires that had been returned by the Nov. 2 deadline, about 950 were incomplete. Also, the debtors said, approximately 1,180 claimants failed to return the questionnaires. The debtors' request of the bankruptcy judge to set another deadline and then disallow the claims from those who did not provide properly completed questionnaires was opposed by the Official Committee of Asbestos Personal Injury Claimants and dozens of law firms representing mesothelioma claimants.
Bankruptcy Judge Fitzgerald rejected the debtors' request to disallow claims of noncompliant claimants, instead setting a deadline for claimants to submit questionnaires and directing the debtors to meet with claimants' law firms to discuss what information was still needed. On April 30, with more than 1,200 mesothelioma claimants still not providing the information sought, the debtors filed their second motion seeking to compel compliance. The debtors said that as a result of their efforts in working with the law firms, many claimants provided supplemental information, but approximately 815 questionnaires remained incomplete and approximately 400 mesothelioma claimants had not submitted a PIQ.
The debtors asked Bankruptcy Judge Fitzgerald to order the remaining noncompliant claimants to submit the information requested and then estimate at zero the mesothelioma claims of claimants who again failed to comply and preclude them from voting on the debtors' plan of reorganization.
On July 6, the bankruptcy judge entered an order on the debtors' motion directing claimants to submit a PIQ or provide the omitted information by July 9. If the debtors believed that there are still omissions or deficiencies, or if no PIQ had been submitted, the debtors were required to file a notice listing the claimants who are still not in compliance and identifying what information is incomplete or missing. The order also required the debtors to indicate in the deficiency notice that they are seeking a sanction against the claimants and to file a motion for such sanctions.
The debtors then filed the motion, saying that PIQs from 396 claimants remained incomplete and that 383 claimants failed to submit a PIQ. The debtors again sought an order directing that the asbestos personal injury claims of the noncompliant claimants be estimated at zero and precluding the noncompliant claimants from voting on any plans of reorganization proposed in the case.
The official committee and the future claimants' representative (FCR) filed separate objections to the motion, and 13 other objections were filed by asbestos claimants and their law firms.
The debtors said that in an effort to consensually resolve or narrow the objections, they evaluated the information provided by the claimants in the objections and contacted the objectors to share the debtors' conclusions on whether the claimants remained noncompliant. Based on that work, the debtors modified the original lists of noncompliant claimants, naming 230 claimants who did not submit a PIQ and 262 claimants who submitted incomplete PIQs. The bankruptcy judge then gave those claimants until Sept. 7 to provide questionnaire information.
In her order, Bankruptcy Judge Fitzgerald said that while the debtors can estimate at zero the 230 claims by claimants who failed to submit a PIQ, the estimation experts for the official committee and FCR "are not precluded from proffering an estimation of such claims at a different value" at the debtors' estimation hearing.
Likewise, while the bankruptcy judge denied the debtors' request for the same discovery sanction for the 262 claimants who submitted a deficient PIQ, she said that "the Debtors may argue that one or more of such claims should be estimated at zero, and the [official committee] and FCR may argue that such claims should be estimated in some amount other than zero."
The debtors are represented by Daniel J. DeFranceschi, Paul N. Heath, Tyler D. Semmelman and Zachary I. Shapiro of Richards, Layton & Finger in Wilmington and Gregory M. Gordon, Dan B. Prieto and Robert J. Jud of Jones Day in Dallas.
The committee is represented by Natalie D. Ramsey of Montgomery, McCracken, Walker & Rhoads in Wilmington and Mark B. Sheppard of the firm's Philadelphia office. The FCR is represented by James L. Patton Jr., Edwin J. Harron, Edmon L. Morton, Sharon M. Zieg, Erin Edwards and Michael S. Neiburg of Young Conaway Stargatt & Taylor in Wilmington.
available: Amended list of noncompliant claimants. Document #48-120924-012X.
Motion for sanctions. Document #48-120827-010M.
Official committee's objection. Document #48-120827-015B.
FCR's objection. Document #48-120827-016B.
Order partially approving questionnaire. Document #48-110725-039R.
Questionnaire. Document #48-110725-040X.)
WASHINGTON, D.C. — The U.S. Supreme Court on Oct. 1 denied certiorari to an insurer that had asked the court to hear its claim that arbitration agreements should be honored in bankruptcy proceedings (Continental Insurance Company v. Thorpe Insulation Company, No. 11-1310, U.S. Sup.; See August 2012, Page 24).
Thorpe Insulation Co. filed for Chapter 11 bankruptcy in 2007 in the U.S. Bankruptcy Court for Central District of California. When Thorpe filed its petition, it stayed an arbitration proceeding between it and Continental Insurance Co. related to an indemnity policy.
At the time Thorpe filed its bankruptcy petition, it estimated that 2,000 asbestos cases were pending against it, and more cases were anticipated. Continental and other insurers had paid more than $180 million defending those asbestos claims, and the insurers argued that the policies were exhausted.
The Bankruptcy Court approved Thorpe's reorganization plan, saying it was "insurance neutral," which meant that Continental — Thorpe's insurer — did not have standing to object.
Continental appealed to the U.S. District Court for the Central District of California, which affirmed the Bankruptcy Court's ruling. The insurer then appealed to the Ninth Circuit U.S. Court of Appeals, which reversed and remanded the case to the District Court with instructions that it return the case to the Bankruptcy Court.
On remand, the Bankruptcy Court refused to refer Continental's claim to arbitration and disallowed it. Continental appealed directly to the Ninth Circuit U.S. Court of Appeals, which affirmed the Bankruptcy Court's ruling.
Specifically, the Ninth Circuit ruled that bankruptcy courts have discretion to refuse to enforce arbitration of a core proceeding when "arbitration would conflict with the underlying purposes of the Bankruptcy Code."
Continental petitioned the U.S. Supreme Court, contending that the circuit courts were split on this question and that the high court needed to hear the case to settle the dispute.
The insurer also contended that the Ninth Circuit's decision could not be reconciled with the Supreme Court's precedents and that the question at issue has "obvious importance." The insurer also said the case was the "ideal vehicle for addressing it."
Continental is represented by David C. Christian II of Seyfarth Shaw in Chicago; Todd C. Jacobs of Grippo & Elden in Chicago; and Seth P. Waxman, Craig Goldblatt, Danielle Spinelli and Shivaprasad Nagaraj of Wilmer Cutler Pickering Hale & Dorr in Washington. Thorpe is represented by Kenneth N. Klee of Klee, Tuchin, Bogdanoff & Stern in Los Angeles.
PITTSBURGH — Allowing personal injury claims of a 46-year-old woman who says she is dying from mesothelioma to proceed against an affiliate of bankrupt Pittsburgh Corning Corp. (PCC) would be a distraction in PCC's Chapter 11 case that would adversely affect the debtor and hundreds of thousands of asbestos claimants awaiting payments under PCC's plan of reorganization, PCC says Oct. 3 in response to the woman's request for relief from the bankruptcy stay (In re: Pittsburgh Corning Corporation, No. 00-22876, W.D. Pa. Bkcy.).
Dust On Clothes
PCC filed a voluntary petition in the U.S. Bankruptcy Court for the Western District of Pennsylvania in 2000 for relief under Chapter 11 of the U.S. Bankruptcy Code. The company's reorganization plan has been denied confirmation twice, and its latest plan still faces objections by two insurance companies and a fellow bankrupt asbestos products manufacturer. A confirmation hearing on the plan is set for Nov. 1.
On June 14, 2012, Nancy Easling filed a complaint in the Alameda County, Calif., Superior Court against PCC affiliate Corning Inc. and several other parties, asserting claims for negligence, strict liability, false representation and intentional tort/intentional failure to warn (Nancy Easling v. CertainTeed Corp., et al., No. RG12634694, Calif. Super., Alameda Co.).
Easling, who has been diagnosed with terminal malignant mesothelioma, alleges that Corning supplied asbestos-covered glass annealing lehr rollers to her father's place of employment. She says that she breathed in asbestos dust from her father's clothes as a child and that the exposure to asbestos caused her mesothelioma.
In her Sept. 11 motion for relief from the stay in PCC's bankruptcy, Easling says that the injunction that the Bankruptcy Court issued in 2000 barring claims against PCC and affiliates should not apply to Corning because it is an independent corporate entity with management and operations that are separate from PCC.
"Corning has not itself sought relief under Chapter 11 of the Bankruptcy Code and has thus declined to subject itself to the rigors of the reorganization process. Yet it seeks to reap the benefits of another entity's reorganization," Easling says.
In addition, under Federal Rule of Bankruptcy Procedure 9024, relief from the stay should be granted due to a change in circumstances in the case, Easling says. She argues that under PCC's third amended reorganization plan, claims like hers against Corning are not barred by the plan's channeling injunction.
"Any benefit the injunction might have conferred upon the estate with regard to claims against Corning for its own products has been met by the outcome of the plan negotiations," Easling says. "Further application of the injunction as it applies to Ms. Easling's claim is nothing but an injustice to her, and this Court should, as a matter of fundamental fairness, dissolve or modify the injunction with respect to her claims."
But PCC says that relief from the stay should be denied because it is based on Corning's treatment under a reorganization plan that is not confirmed yet. PCC argues that, because the plan isn't confirmed, any change in circumstances is hypothetical, pending the Bankruptcy Court's approval in a confirmation order.
"Until the Plan is confirmed, allowing Ms. Easling or any other claimant to proceed as if it already was confirmed is premature at best, and at worst could lead interested parties or creditors to seek pre-confirmation treatment according to the terms of an unconfirmed plan," PCC says.
In its own objection to Easling's motion, filed Oct. 3, Corning says that it should be denied because she does not offer a reason why her personal injury action should be treated any differently than the thousands of other asbestos-related personal injury and wrongful death claims that have been stayed through the injunction.
(Corning's objection available. Document #48-121022-025B.)
"It would be counter-productive, on the eve of a final resolution (whether negotiated or litigated) of the handful of remaining Plan objections, to cause distraction and disruption by allowing the Movant's claims to proceed against Coming," Corning says. "The Parties have and should remain focused on the Plan, which is poised to provide more than $3 billion to resolve the claims of thousands of asbestos claimants, as they proceed through the few remaining final steps to confirmation."
Century Indemnity Co. and Westchester Fire Insurance Co., "in their capacity as alleged insurers of Corning," also filed an objection to Easling's motion on Oct. 3, arguing that Easling failed to present sufficient evidence to meet her burden of proof to demonstrate that the circumstances surrounding the injunction have changed.
(Insurers' objection available. Document #48-121022-026B.)
Easling is represented by Charles S. Siegel of Waters & Kraus in Dallas.
PCC is represented by James J. Restivo Jr., Douglas A. Cameron, Andrew J. Muha and David Ziegler of Reed Smith in Pittsburgh. Corning is represented by Kimberly Luff Wakim and William C. Price of Thorp Reed & Armstrong in Pittsburgh and Cheryl A. Heller and Christin Murphy Cometta of Ward Greenberg Heller & Reidy in Rochester, N.Y.
Century and Westchester are represented by Tancred V. Schiavoni and Gary Svirsky of O'Melveny & Myers in New York and Joseph Gibbons, C. Justin Conrad and Michael S. Olsan of White and Williams in Pittsburgh.
MINNEAPOLIS — A Minnesota federal judge on Sept. 27 dismissed an asbestos trust's declaratory judgment and breach of contract claims against an insolvent insurance company after the parties jointly stipulated to the dismissal (API, Inc. Asbestos Settlement Trust v. Atlantic Mutual Insurance Co., No. 09-665, D. Minn.; See November 2011, Page 11).
API Inc. sold insulation materials containing asbestos from the 1940s to the 1970s before entering bankruptcy. The company's plan of reorganization, confirmed in 2006, created the API Inc. Asbestos Settlement Trust to assume the rights and liabilities of API with respect to asbestos-related claims (See July 2006, Page 8). The trust claims that Atlantic Mutual Insurance Co., a New York corporation, issued a policy to API for the period April 9, 1966, to April 9, 1967, but Atlantic disputes whether the policy existed and whether the trust is entitled to any insurance proceeds.
In March 2009, the trust sued Atlantic in the U.S. District Court for the District of Minnesota, seeking a determination of Atlantic's responsibilities regarding asbestos-related claims brought against API and the trust. The complaint also alleges breach of contract, contribution rights, fraudulent misrepresentation, negligent misrepresentation, breach of fiduciary duty, tortious breach of the implied covenant of good faith and fair dealing and consumer fraud.
In September 2010, the New York County, N.Y., Supreme Court issued an order of rehabilitation of Atlantic, finding that the insurer was insolvent. On April 27, 2011, the court issued an order of liquidation, finding that Atlantic remained insolvent and that further efforts to rehabilitate it would be futile. The court ordered that the rehabilitation proceeding be converted to a liquidation proceeding and that Atlantic's business and affairs be liquidated.
Control Of Assets
In response to the rehabilitation order, Atlantic withdrew a pending motion for summary judgment in the District of Minnesota case and requested a stay of the action based on the doctrine of abstention or dismissal of the case based on the Minnesota Insurers Rehabilitation and Liquidation Act (IRLA) and the McCarran-Ferguson Act. The trust requested that the District Court not stay or dismiss the action and sought only a judicial determination of the parties' rights and obligations, acknowledging that because the New York liquidator maintains control of Atlantic's assets, the trust must submit a claim for any damages to the liquidator to obtain those assets.
On Nov. 2, Judge John R. Tunheim denied Atlantic's bid for dismissal but stayed the trust's action pending the outcome of the insurer's liquidation proceeding. In refusing to dismiss the action, the judge held that the IRLA does not prohibit the court from hearing the trust's in personam claims, citing a Minnesota Supreme Court finding that Minnesota courts can adjudicate in personam claims against insolvent insurance companies that do not interfere with the res of a reciprocal court.
As to the McCarran-Ferguson Act, the judge said that "dismissal is inappropriate in this action, where there is no inherent conflict between New York's liquidation of Atlantic's property and the Court's determination of the rights and obligations of the parties."
But Judge Tunheim agreed that the case should be stayed based on principles of abstention, holding that the New York court's intent to create a "mandatory special procedure" for the adjudication of all claims against Atlantic is an important consideration under abstention principles.
The judge stayed the trust's complaint pending an order in the New York court deciding the trust's claims against Atlantic.
On Sept. 26, the parties filed a joint stipulation of dismissal, agreeing to dismiss the action with prejudice and with each party paying their own costs. No reason was given for the dismissal. Judge Tunheim ordered the case dismissed based on the stipulation and "all the files, records and proceedings" of the case.
API is represented by Robert D. Brownson and Jessie Erin Rosenthal of Brownson & Ballou in Minneapolis. Atlantic is represented by John M. Anderson, Jeffrey Mulder and Robin Ann Williams of Bassford Remele in Minneapolis.
(Additional document available. District Court's Nov. 2 memorandum opinion and order. Document #48-111128-001Z.)
CORPUS CHRISTI, Texas — On remand, a Texas federal bankruptcy judge on Sept. 27 awarded a fee enhancement of more than $9 million to a law firm that worked on ASARCO LLC's Chapter 11 case. On Oct. 10, ASARCO appealed the ruling, sending the dispute back to a federal district court at the same time that it faces appellate review by the Fifth Circuit U.S. Court of Appeals (In re: ASARCO LLC, et al., No. 05-21207, S.D. Texas Bkcy.).
20 Percent Bonus
ASARCO and five subsidiaries filed voluntary petitions in 2005 in the U.S. Bankruptcy Court for the Southern District of Texas for relief under Chapter 11 of the U.S. Bankruptcy Code due in part to asbestos and environmental claims. ASARCO's plan of reorganization was confirmed and became effective in 2009.
Law firms Baker Botts LLP and Jordan, Hyden, Womble, Culbreth & Holzer served as co-counsel to ASARCO during the bankruptcy and received standard quarterly interim compensation awards for their fees and expenses throughout the case. In their final fee applications, the firms requested compensation beyond their hourly rates and the number of hours worked. They said they should receive an additional 20 percent bonus on top of their lodestar rate because of the exceptional results in the case, including one of the largest actual damage awards in U.S. history in a fraudulent conveyance action that returned $6 billion to $9 billion in stock in Southern Peru Copper Co. (SCC) and $1 billion in cash to ASARCO.
Baker Botts requested a $22.6 million fee enhancement, and Jordan Hyden sought a $1.4 million fee enhancement. Baker Botts also sought additional fees for prosecuting its request for a fee enhancement.
ASARCO objected to the requests, but the Bankruptcy Court found that a fee enhancement was appropriate because the SCC judgment "resulted in the recovery of a substantial asset for the estate." The court granted Baker Botts an enhancement of $4,161,708.96 for its work on the SCC fraudulent conveyance litigation and granted Jordan Hyden $125,831 for the role that firm played in that litigation. In addition, the Bankruptcy Court granted Baker Botts $5 million in fees and $457,443.83 in expenses and Jordan Hyden a total of $15,035.74 for preparing and defending their fee applications. The court also awarded both firms post-judgment interest on the unpaid portion of the fee awards. ASARCO and U.S. Trustee Judy A. Robbins appealed the rulings to the U.S. District Court for the Southern District of Texas.
On Aug. 8, Judge Andrew S. Hanen affirmed the fee enhancement awards for both law firms, finding that the $10 billion ruling in favor of ASARCO in the SCC fraudulent conveyance judgment is a "rare and extraordinary event" that warrants enhanced fees for the attorneys who successfully prosecuted the case. Judge Hanen also affirmed the Bankruptcy Court's finding that the law firms are entitled to an award of fees and expenses in connection with preparing their fee application and defending the core fees.
However, the judge held that, while the award to Jordan Hyden stands, Baker Botts is not entitled to an award of fees and expenses expended solely in "the pursuit of a fee enhancement." Judge Hanen further held that Baker Botts is entitled to an award of fees incurred to "refute meritless objections" to the core fees but not for "the recreation of initially inaccurate or insufficient time records." The judge also held that the law firms are not entitled to post-judgment interest on all accrued amounts.
Because the Bankruptcy Court did not differentiate what fees it awarded to Baker Botts were attributable to the firm's preparation and defense of its fee application from those expended in pursuit of a fee enhancement, Judge Hanen remanded the case for the Bankruptcy Court to make further findings on those portions of the fee award.
ASARCO and Robbins appealed the District Court's rulings on both law firms to the Fifth Circuit (ASARCO L.L.C., et al., v. Baker Botts L.L.P., No. 12-40998, 5th Cir., and ASARCO, L.L.C., et al., v. Jordan Hyden Womble Culbreth, No. 12-40997, 5th Cir.).
Meanwhile, on remand, Bankruptcy Judge Richard S. Schmidt directed the administrator of ASARCO's plan of reorganization to pay Baker Botts $9,495,543.78 for its unpaid fees and expenses. The amount includes the fee enhancement and expenses sought by the law firm, minus $255,213.23 in expenses that the bankruptcy judge found were incurred for the pursuit of the fee enhancement and therefore should not be included in the award as instructed by the District Court.
"None of the Court's award of $5,000,000 in fees incurred by Baker Botts in preparing and defending the Fee Application through July 13, 2010, is an award of fees for the pursuit of a fee enhancement," Bankruptcy Judge Schmidt said. He added that the $5 million award also was not for "the recreation of initially inaccurate or insufficient time records" because Baker Botts' records were not inaccurate, insufficient or otherwise deficient.
ASARCO and Robbins again appealed, sending the dispute back to the District Court.
ASARCO is represented by Ralph D. McBride, Bryan S. Dumesnil, Bradley J. Benoit and Heath A. Novosad of Bracewell & Giuliani in Houston. Robbins is represented by Kevin M. Epstein of the U.S. Department of Justice in San Antonio.
Baker Botts is represented by Jack L. Kinzie, Kemp Sawers and Omar J. Alaniz of Baker Botts in Dallas and G. Irvin Terrell and Aaron M. Streett of the firm's Houston office. Jordan Hyden is represented by Shelby A. Jordan and Nathaniel P. Holzer of Jordan Hyden in Corpus Christi.
documents available: District Court's Aug. 8 memorandum opinion and
order on fee application of Baker Botts. Document #48-120827-027Z.
District Court's Aug. 8 memorandum opinion and order on fee application of Jordan, Hyden, Womble, Culbreth & Holzer. Document #48-120827-028Z.)
WILMINGTON, Del. — The Delaware Supreme Court on Aug. 15 heard arguments on whether the judge overseeing the state's asbestos docket properly levied sanctions against a plaintiffs' attorney for providing inaccurate case cites (Thomas C. Crumplar v. The Superior Court, Thomas C. Crumplar v. The Superior Court, Nos. 643, 2011, 644, 2011, Del. Sup.).
Arguing on behalf of attorney Thomas C. Crumplar, Edward McNally told the court he was not seeking a low standard for attorney misconduct but instead a fair standard. McNally argued that Crumplar properly recited the legal arguments and simply misnamed the case. In fact, Crumplar's conduct violates neither the objective nor the subjective standard under Superior Court Civil Rule 11, McNally said.
Such an error suggests that Crumplar could have done a better job in advocacy, but it does not rise to the level of a Rule 11 violation, McNally said. McNally argued that an honest, one-time mistake should not form the basis of a Rule 11 violation.
'He Just Made A Mistake'
"He had a basis to make the statement, he just made a mistake," McNally said.
McNally argued that if Delaware Superior Court Judge Peggy Ableman is frustrated by the complex asbestos docket and the unreported case rules, the proper way to address them is to not allow cites to cases absent transcripts, not to chastise an attorney for an honest mistake.
McNally said that at the very least, Crumplar was entitled to a hearing on the Rule 11 violation.
Deputy Attorney General Ralph K. Durstein III told the court that no due process violation occurred. Further, Judge Ableman's opinion addressed Crumplar's conduct under both standards and found it lacking under both, Durstein said.
Durstein argued that because there are no transcripts of unreported asbestos cases, the court must instead rely on the memories of asbestos attorneys. In these types of cases, a higher standard must apply, Durstein argued. With no case record to cite, it is imperative that the lawyers cite the proper cases, Durstein argued.
And rather than having no effect, Judge Ableman found that Crumplar's conduct tainted the process, Durstein argued.
In her October order imposing $25,000 in sanctions, Judge Ableman said Crumplar "placed this judge in an unfortunate and regrettable position, one that the court hopes will not recur in this or any future litigation."
The sanctions were in two asbestos cases: one filed by Gerald Johnston and one by Joseph Turchen. Both alleged exposure to asbestos as pipe fitters employed for decades at the DuPont Experimental Station beginning in the late 1950s. Turchen allegedly contracted mesothelioma as a result of the exposure, and Johnston contracted asbestosis and lung cancer.
Defendant McCardle-Desco Corp. moved for summary judgment in both cases; County Insulation Co. moved for summary judgment in the Turchen case. Judge Ableman said that in one case, Crumplar implored her to rely on his word as an officer of the court but made misrepresentations and unverified assertions. In the second case, Crumplar ignored and failed to cite adverse authority, according to Judge Ableman.
McNally of Morris James in Wilmington represents Crumplar. Deputy Attorneys General Durstein, Edward K. Black and Thomas E. Brown in Wilmington represent the Superior Court.
SACRAMENTO, Calif. — Gov. Edmund G. Brown Jr. on Sept. 17 signed legislation limiting depositions in civil cases to one seven-hour session.
(Legislation available. Document #01-120926-011L.)
Assembly Bill 1875 amends Code of Civil Procedure Section 2025.290. The law allows for additional time if the deponent or some other party or circumstance impedes or delays the deposition. The limitation does not apply to depositions of expert witnesses.
The law also excludes complex cases; however, it applies a cap of two days of no more than seven hours of deposition testimony when a licensed physician determines that a medical condition justifies such a limitation.
The law also excludes cases brought by employees or applicants, witnesses designated as "most qualified person to be deposed" or any party appearing in the action after the deposition has concluded.
Parties to the litigation can stipulate to ignore the seven-hour limitation.
Assembly Member Mike Gatto (D.-43rd Dist.) introduced the legislation in February. It passed the Senate 24-14 on Aug. 28 and passed the Assembly 52-27 the next day.
Assembly Member Tom Ammiano (D.-13th Dist.) coauthored the legislation.
BALTIMORE — A manufacturer owes a duty to household members whose contact with a known danger is reasonably foreseeable, a Maryland appeals court held Sept. 26 (Georgia-Pacific LLC, f/k/a Georgia-Pacific Corp. v. Jocelyn Anne Farrar, No. 751 September Term 2010, Md. Spec. App.).
Differentiating the instant case from others where it found no duty, the Maryland Court of Special Appeals said that "in a products liability context, however, the manufacturer of a defective product is liable to those who fall within the foreseeable zone of danger. In our case, liability extends to those that are directly harmed by a defective product."
Jocelyn Farrar, a professor at the University of Maryland School of Nursing, sued more than 30 defendants in September 2008, alleging that their conduct exposed her to asbestos, causing her to contract mesothelioma. Farrar alleged that she was exposed to asbestos when she laundered the clothing of her grandfather, John Hentgen, who carried the asbestos home with him on his clothing from his job as an insulator. Farrar alleged that this continued over a period of years beginning in the 1960s.
Georgia-Pacific LLC, the lone remaining defendant at trial, moved for judgment at the close of Farrar's case, arguing that it did not owe a duty to Farrar. Baltimore City Circuit Court Judge Barry G. Williams denied the motion. A jury eventually found against Georgia-Pacific and awarded $20,272,575, consisting of $18.5 million in past and future noneconomic losses, $1.6 million in future economic losses, $75,000 in future medical expenses and $97,575 in past medical expenses. Judge Williams entered a $4,995,018.75 judgment against Georgia-Pacific after granting the company's motion for judgment notwithstanding the verdict on the sole issue of future medical expenses. Georgia-Pacific appealed.
In its opinion affirming, the Maryland Court of Special Appeals found Anchor Packing Co. v. Grimshaw (115 Md. App. 134, 191  Shepardize) especially on point. Under Grimshaw and other Maryland case law, manufacturers must warn all people in the reasonably foreseeable zone of danger.
The court rejected Georgia-Pacific's claim that Grimshaw, as a direct bystander case, was inapposite and involved only whether sufficient evidence existed to submit the issue to the jury. The court said that it is not clear from Grimshaw that it involved a direct bystander and that it would not read the case as narrowly as Georgia-Pacific.
(Opinion available. Document #01-121010-001Z.)
WILMINGTON, Del. — A Delaware judge on Sept. 5 declined a motion by settled plaintiffs to vacate his ruling that Pennsylvania would not impose a duty on employers for take-home asbestos exposure. The judge earlier granted reconsideration on the issue and asked for further briefing (In re: Asbestos Litigation: Janine McCoy and Marvin McCoy Limited to: PolyVision Corp., No. N10C-04-203 ASB, Del. Super., New Castle Co.).
Janine and Marvin McCoy asked New Castle County Superior Court Judge John A. Parkins Jr. to vacate his February ruling, saying they settled the case with PolyVision Corp. after he granted reconsideration. The McCoys argued that granting reconsideration reopened the matter and that Judge Parkins had the authority to vacate rulings to ensure justice.
The McCoys sued numerous companies whose conduct allegedly exposed Janine McCoy to asbestos, causing her to contract mesothelioma. Janine McCoy's exposure allegedly came while she was laundering Marvin McCoy's clothing after he returned home from work at PolyVision Corp. in Dixonville, Pa. The McCoys alleged that between 1974 and 1983, Marvin McCoy cut asbestos-containing cement board.
PolyVision moved for summary judgment, arguing that it owed no duty under Pennsylvania law to household members of employees for take-home asbestos exposure. Judge Parkins first noted that Pennsylvania courts had not addressed the issue but concluded that the state would not impose such a duty.
CLEVELAND — An Ohio jury on Sept. 7 awarded a widow $3,902,813.54 while holding four ship builders liable for her husband's mesothelioma (Delores A. LaParl, personal representative of the estate of William S. LaParl v. Columbia Trans. Co., et al., No. CV-08-667485, Ohio Cmn Pls., Cuyahoga Co.).
Delores A. LaParl filed suit in the Cuyahoga County Court of Common Pleas against numerous companies whose conduct allegedly exposed William LaParl to asbestos, causing his mesothelioma and death. The decedent's exposure allegedly came while serving 35 years in the Merchant Marines.
At trial, only LaParl's claims against Columbia Transportation Co., Interlake Steamship Co., Oglebay Norton Co. and Pringle Transit Co. remained.
Jury selection began Aug. 27, and opening statements occurred Aug. 28. Closing argument occurred Sept. 6, and the following day, the jury returned a verdict for LaParl in the amount of $3,902,813.54 consisting of $3.8 million in pain and suffering and $102,813.54 in medical expenses.
The jury found that LaParl proved that the decedent suffered from mesothelioma, that Columbia, Interlake, Oglebay Norton and Pringle acted negligently and that the negligence contributed to the decedent's mesothelioma. The jury found that none of the defendants' ships was unseaworthy during the time the decedent served aboard them.
(Verdict sheet available. Document #01-120926-027V.)
LOS ANGELES — A judge properly granted a new trial in an asbestos case in which a jury awarded $208.8 million but found no liability on behalf of the biggest supplier of the product in question, a California appeals court panel held Sept. 24 (Rhoda Evans, et al. v. CertainTeed Corp., Los Angeles Department of Water and Power, No. B227075, Calif. App., 2nd Dist.; See September 2010, Page 32).
Rhoda Evans sued numerous companies whose conduct she claimed exposed her to asbestos, resulting in her mesothelioma. Evans alleged that she was exposed when her husband, Bobby Evans, brought asbestos home with him on his clothing after working at the Los Angeles Department of Water & Power.
A jury awarded $8.8 million in compensatory damages and $200 million in punitive damages. The jury held CertainTeed Corp. 70 percent liable for Rhoda Evans' mesothelioma and apportioned 30 percent of the liability to the City of Los Angeles through defendant the Los Angeles Department of Water & Power (DWP). The jury's punitive damages award was against CertainTeed alone.
Los Angeles County Superior Court Judge Conrad R. Aragon granted CertainTeed's post-trial motions, finding that the U.S. Constitution did not support the jury's $200 million punitive damages award and that its failure to find liability on the part of Johns Manville (JM) went against the weight of the evidence. Judge Aragon reduced the $200 million award to $5,021,015, a 1-to-1 ratio with CertainTeed's share of the compensatory damages. Evans appealed, and CertainTeed cross-appealed.
A panel of the Second District Court of Appeal rejected Evans' claim that Judge Aragon misunderstood comparable fault law.
"The absence of express language in the court's order to the effect that [CertainTeed] had the burden to prove a precise, numerically stated percentage of JM's comparative share of fault does not demonstrate a misunderstanding of the law on the part of the court. At best, it demonstrates that the court did not feel the need to expend ink and paper expressing the law governing the burden of proof. We see nothing in the record on appeal which tends to suggest that the trial court did not know the law," the panel said.
(Opinion available. Document #01-120926-026Z.)
EDINBURGH, Scotland — A Scottish justice on Oct. 5 dismissed claims filed by the estate of a man who died of mesothelioma that was allegedly caused by asbestos exposure at work against a local council, finding that the council did not inherit any liability when it became the successor of a development company that used to employ the worker (Gordon Bavaird and others v. Sir Robert McAlpine Ltd. and others, No. PD2948/10, Scottish Sess., Outer House).
The estate of Gordon Bavaird sued Sir Robert McAlpine Ltd., South Lanarkshire Council and others in the Scottish Court of Session, Outer House, seeking damages for his mesothelioma. The estate sued McAlpine under the Damages (Scotland) Act 1976, alleging that Bavaird contracted mesothelioma after exposure to asbestos at work between 1948 and 1974.
The estate alleged that Bavaird's asbestos exposure was the result of the negligence and breach of statutory duty of various employers. The council, a local authority, was constituted under the Local Government (Scotland) Act 1974 and is the successor to the property, rights and liabilities of East Kilbride Development Corp. (EKDC) as the result of the New Town (East Kilbride) (Transfer of Property, Rights and Liabilities) Order 1996 (SI 1996/465) (1996 order).
The estate argued that the council was liable for Bavaird's asbestos exposure during his employment with EKDC.
Lord Justice S. Neil Brailsford said that the council argued that at the date of EKDC's dissolution, it had no liability to Bavaird that could have been transferred by the 1996 order. Since no liability existed at the time of EKDC's dissolution, the council argued that no liability was subsequently created after the dissolution. The council argued that even if the estate's pleadings were accepted by the court, EKDC had no liability at the relevant time.
Justice Brailsford said that the statute relied on by the estate did not provide for the transfer of contingent liability.
(Judgment available. Document #64-121016-005X.)
TORONTO — After finding that various insurers were the successful parties in an action filed by two companies that sought insurance coverage for asbestos-related disease claims, a Canadian justice on Oct. 9 awarded the insurers the costs associated with the case (Goodyear Canada Inc. v. American International Companies [American Home Assurance Company], No. 09-377269, Ontario Super.; See October 2011, Page 34).
Goodyear Canada Inc. and its U.S. parent, Goodyear U.S., were named as defendants in numerous lawsuits in the United States involving individuals seeking compensation for asbestos-related diseases. The claimants allege that they were exposed to asbestos-containing products that were made by Goodyear Canada and sold in the United States.
In 2004, Goodyear Canada sued American International Cos., formerly American Home Assurance Co., and various insurers in the Ontario Superior Court of Justice, seeking declaratory relief in relation to Canadian insurance coverage for the U.S. asbestos claims. Justice David G. Stinson said that the bodily injury claims span from 1969 to the present and the policies that were initially included in Goodyear Canada's case were issued by the defendants between 1969 and 1986. In 1980, Goodyear Canada moved coverage for its U.S. product liability claims to a U.S. insurer. Goodyear Canada subsequently restricted its claims to policies that were in force between 1969 and 1980.
Rather than proceeding directly to trial, the parties agreed to file a motion for the determination of certain legal and factual issues. Justice Stinson said the main issue was whether Goodyear Canada could be held liable for injuries or occurrences that happened after 1985. Goodyear Canada maintains that insurance coverage for asbestos-related claims was not available at that time. Justice Stinson said that he was asked to review whether the Stonewall principle, as addressed in Stonewall Insurance Company v. Asbestos Claims Management Corporation (73 F.3rd 1178 Shepardize [2d Cir. 1995]), should be adopted as Ontario law.
On Sept. 16, 2011, Justice Stinson found that insurance coverage on commercially reasonable terms for asbestos-related liability in the United States was not available to Goodyear Canada after 1985. Given the finding that the Stonewall principle applies only to conventional insurance, Justice Stinson found that insurance was not available to Goodyear after 1985.
Justice Stinson also rejected the argument that Goodyear Canada's deductible should be pro-rated over covered years, where the allocation had occurred over several policy years. The justice said that Goodyear Canada entered into policy agreements that included deductible provisions. He found no reason to depart from the contract that was entered into voluntarily by the parties.
Justice Stinson said that the insurers sought costs in relation to the Sept. 16 ruling. Goodyear Canada objected to the insurers' request for costs, arguing that the outcome of the case was divided and that the apportionment of the costs should reflect the decision. Justice Stinson said that the insurers sought to recover costs based on the principle that Goodyear Canada, as the unsuccessful party, should pay their costs, as the successful party. Goodyear Canada argued that it prevailed on the factual issues of whether coverage was available after 1985.
"Based on the foregoing outcomes, in my view, the defendants were the clear winners. I am alert to plaintiff's submission that it prevailed on the factual issue. But in my view that argument, to the extent it has any merit, should be considered in relation to the quantification of the defendants' costs award. It does not detract from the overall outcome, which dictates that the plaintiff should pay costs to the defendants," Justice Stinson said.
(Judgment available. Document #64-121016-006X.)
By Marc C. Scarcella, Peter R. Kelso, and Joseph Cagnoli, Jr.
[Editor's Note: Marc C. Scarcella and Peter R. Kelso, Managers at the Washington, DC office of Bates White Economic Consulting. Joseph Cagnoli, Jr., Shareholder in the Philadelphia office of Segal McCambridge Singer & Mahoney, Ltd. The views of the authors do not reflect the opinions of their respective firms, their clients, or Mealey's Publications. © 2012 by Marc C. Scarcella, Peter R. Kelso and Joseph Cagnoli, Jr. Responses are welcome.]
(Complete version of commentary with charts and tables available. Document #48-121022-199X.)
Over the past two decades, asbestos litigation has undergone a succession of pivotal changes. Each change led to new claiming and settlement patterns that altered the legal and financial circumstances of asbestos plaintiffs and defendants. One of the most significant changes was the "Bankruptcy Wave" that began in 2000 and ended with dozens of primary asbestos defendants filing for bankruptcy reorganization ("Reorganized Defendants").1 Since asbestos lawsuits are stayed during the reorganization process, a substantial source of plaintiff compensation associated with these primary defendants exited the tort system.2 This marked a significant shift in asbestos litigation as plaintiff attorneys were faced with having to fill the void in compensation left behind by these Reorganized Defendants.
Prior to the Bankruptcy Wave, asbestos lawsuits were centered on the thermal insulation products and industrial settings that most scientific literature considered to present the highest excess exposure risk.3 In turn, defendants responsible for the manufacturing and distribution of such products were considered the most culpable sources of plaintiff compensation. Even after the largest manufacturer of asbestos-containing thermal insulation products, Johns-Manville, filed for bankruptcy protection in 1982, dozens of other thermal insulation defendants such as Owens-Corning, Fibreboard, and Pittsburgh Corning remained and continued to be primary sources of compensation.4 However, following the bankruptcies of those frontline defendants during the Bankruptcy Wave, plaintiff attorneys shifted their litigation strategy away from the traditional thermal insulation defendants and towards peripheral and new defendants associated with the manufacturing and distribution of alternative asbestos-containing products such as gaskets, pumps, automotive friction products, and residential construction products.
As a result, these peripheral and new defendants experienced a dramatic increase in both the number of lawsuits in which they were named, the frequency in which their products and operations were identified as sources of asbestos exposure, and the overall settlement demands that plaintiff attorneys were seeking. Conversely, the primary thermal insulation defendants that filed for bankruptcy reorganization all but disappeared from the litigation and rarely are identified in cases today. To study the extent of this shift in allegations from traditional defendants to peripheral defendants, we examined the Philadelphia Court of Common Pleas asbestos docket through a sample of mesothelioma cases from 1991 to 2010.5
The Bankruptcy Wave had a dramatic impact on the claiming behavior in asbestos lawsuits. Prior to the Bankruptcy Wave, the naming patterns, exposure allegations and compensation to plaintiffs were relatively consistent with defendant manufacturing and distribution market share of asbestos-containing products. After the Bankruptcy Wave, however, plaintiff attorneys refocused their litigation strategy on defendants who previously had only been peripheral sources of plaintiff compensation, in addition to developing exposure cases against a new group of defendants who were rarely, if ever, named prior to 2000. Typically, one would think that when a majority of defendants in a tort exit the litigation through bankruptcy reorganization the defendant pool is reduced and the number of defendants named in future lawsuits decreases. However following the Bankruptcy Wave in asbestos litigation, the opposite was true.
Exhibit 1 summarizes the naming patterns from our sample. On average, 25 defendants were named on a mesothelioma lawsuit filed between 1991 and 2000, 10 of which eventually filed for bankruptcy reorganization by 2004. Between 2006 and 2010, the average number of defendants named on a complaint rose to nearly 40, with virtually no Reorganized Defendants being named. This suggests that plaintiff attorneys are pursuing cases against 2.5 peripheral or new defendants for every Reorganized Defendant they previously named.
The fact that plaintiff attorneys are no longer naming Reorganized Defendants on asbestos lawsuits is not surprising. When an asbestos defendant files for bankruptcy protection, they typically reorganize under section 524(g) of the bankruptcy code. In addition to placing a stay on claims against the defendant during the pendency of the reorganization process, all current and future asbestos claims are eventually channeled to a personal-injury trust following bankruptcy confirmation.6 These trusts assume the legal responsibility of the Reorganized Defendant's asbestos-related liability and, in turn, are funded with assets intended to pay compensable claims.
Unlike the tort system, asbestos trusts are designed to process, qualify, and pay claims through an administrative process that does not require litigation. As a result, even the asbestos trusts that now stand in the shoes of those Reorganized Defendants will rarely, if ever, be named in a lawsuit. Effectively, the bankruptcy reorganization process has created a dual compensation system where plaintiffs may be independently compensated by both administrative trust payments and by tort-based settlements.
The dual compensation system
The discussion surrounding the asbestos trust compensation system and its lack of transparency to the tort system has been the focus of academic, judicial, and legislative debates across the country in recent years.7 Even though asbestos bankruptcy reorganizations and resulting trust funds have been around for decades, it has only been in the past few years that the trust system as a whole has become a substantial source of plaintiff compensation. That is because the bankruptcy reorganization process itself can take several years to reach confirmation. Furthermore, establishing an operational trust to begin processing, reviewing, and paying claims has taken from six months to multiple years following confirmation. As a result, many trusts established to stand in the shoes of Reorganized Defendants did not start compensating claimants until the late 2000s. Exhibit 2 shows the growth of the trust system over time and the assets earmarked for pending but not yet confirmed 524(g) reorganization plans.8
As asbestos trust assets have grown over time, so have payments to asbestos claimants. Between 2006 and 2011, the trust system distributed over $14 billion in claim payments. As these trust payments have increased, so have questions regarding the lack of transparency between the trust and tort compensation systems.
1. At what rate are plaintiffs filing asbestos trust claims in addition to their tort claim?
2. For those trust claims that are being filed, are the exposure allegations and evidence submitted in support of the trust claims consistent with the allegations and disclosures in the tort claim?
3. Are the characteristics of a claimants' exposure profile predicated on the defendants that are currently in the tort system?
Industrial exposure patterns
To assess if the exposure profiles of plaintiffs today are similar to plaintiffs in the pre-Bankruptcy Wave period of the 1990s, we first looked to see what percentage of plaintiffs within our sample could allege exposures at industrial work sites where thermal insulation products were likely to be present. The types of sites we considered include shipyards, ships, refineries, steel mills, and power plants. The sample data suggest that prior to the Bankruptcy Wave roughly 77% of all plaintiffs had some potential exposures linked to an industrial work site. Since the Bankruptcy Wave, this percentage has only dropped slightly to approximately 72% of plaintiffs.
Moreover, a majority of the plaintiffs that once worked at these industrial sites did so in a high-exposure occupation. In fact, the sample data between 2006 and 2010 suggest that the level of plaintiffs working in high-exposure occupations in industrial settings has actually increased slightly from the pre-Bankruptcy Wave period. The types of occupations we considered include insulators, boiler/firemen, pipefitters, machinists, iron workers, or general asbestos workers. Exhibit 3 summarizes these findings.
In addition to analyzing the location and nature of potential exposures to thermal insulation products, we also looked to see if the years of potential exposure have changed with more recent filings. Exhibit 4 shows that even as the plaintiff population has aged over time with an increasing level of exposure in the 1970s, a majority of exposures at these industrial sites still occur during the 1950s and 1960s. Prior to the Bankruptcy Wave, roughly 59% of the industrial exposures occurred between 1950 and 1969. More recently, for cases filed between 2006 and 2010, the percent of industrial exposures that occurred between 1950 and 1969 decreased only marginally to approximately 57%.
These findings are consistent with the epidemiological literature that commenced with the seminal work of Dr. William J. Nicholson in 1982.9 Dr. Nicholson's epidemiological studies demonstrate that the exposure history of individuals diagnosed with mesothelioma will change, but that those changes will occur slowly over decades and remain strongly linked to industrial exposure. In essence, the asbestos exposure that workers received in the 1940s through the 1960s caused almost all occupationally induced mesothelioma. Conditional on their exposure history, if and when individual workers develop mesothelioma is a matter of chance. As a result, epidemiology demonstrates that the exposure history of individuals with occupationally induced mesothelioma today is essentially the same as the exposure history of individuals with occupationally induced mesothelioma in the 1990s.
Shift in alleged product exposure
As primary thermal insulation defendants exited the tort system, the economic incentive for plaintiff attorneys and their clients to discuss them in lawsuits diminished. Our sample analysis indicates that the number of peripheral and new defendants positively identified during plaintiff deposition has increased significantly while the number of Reorganized Defendants identified has declined. Prior to the Bankruptcy Wave, deponents identified approximately 15 defendants on average, of which over 50% were primary thermal insulation or refractory defendants that eventually filed for bankruptcy reorganization. After the Bankruptcy Wave, deponents identified about 25 defendants of which only 15% are primary Reorganized Defendants. This suggests that three peripheral or new defendants are identified in deposition testimony today for every primary Reorganized Defendant identified prior to the Bankruptcy Wave. Exhibit 5 summarizes these trends.
This shift away from Reorganized Defendants has resulted in a dramatic decline in the number of times thermal insulation products are identified in deposition testimony or other case documents. Exhibit 6 shows how the identification of thermal insulation and refractory products has declined since the 1990s as the defendants responsible for a majority of the manufacturing and distribution of those products have filed for bankruptcy.10 This is despite the fact that the plaintiff population has not experienced a decline in potential exposures in industrial settings where these products were present. Prior to the Bankruptcy Wave, over one-third of all products identified were thermal insulation or refractory products. That fell to less than 15% between 2006 and 2010.
The rise of alternative alleged exposures
It is clear from the data that the identification of thermal insulation defendants declined substantially since the Bankruptcy Wave. As such, the litigation shifted away from the thermal insulation defendants and towards exposures related to the products of the peripheral and new defendants, even though the exposure history of the majority of plaintiffs in this later period was unchanged relative to earlier plaintiffs; they still worked at sites (frequently the same sites during the same time periods as earlier plaintiffs) where thermal insulation products were present.
A case study on a Philadelphia plaintiff who filed a non-malignant claim in 1981 and subsequently filed a malignant mesothelioma case in 2010 is a prime example of this overall shift in identification patterns. In 1981, the plaintiff alleged exposure to asbestos through his work as an insulator for 30 years at a Philadelphia oil refinery and named 9 defendants in the complaint. Six of those defendants manufactured thermal insulation products and eventually filed for bankruptcy reorganization. The other three defendants were distributors who supplied insulation materials to the plaintiff's job site.11 In addition to the thermal insulation defendants named in the complaint, the plaintiff also identified over 50 thermal insulation products manufactured by the now Reorganized Defendants and another 40 products that were distributed to the refinery by the insulation supplier defendants. In this case, the plaintiff clearly alleged that his three decades working with insulation products at the refinery caused his asbestos-related disease.
However, the 2010 case complaint and allegations of exposure look much different. In the new complaint, the plaintiff now names over 40 defendants and none of the original defendants on the 1981 complaint. The complaint and deposition testimony acknowledge the plaintiffs previous insulation work yet, despite no new alleged exposures since the original complaint was filed in 1981, the focus of the 2010 case now concentrated on the plaintiff's weekend automotive work and potential exposure to asbestos from home construction products. In addition to the new defendants named, the new exposure allegations introduced no less than 12 products not previously identified and alleged exposure to an array of new, non-thermal insulation products such as brakes, gaskets, pumps, roofing, caulk and other construction products.
The sample data show that this particular example is more likely the rule rather than the exception. We found that plaintiff depositions today focus less on thermal insulation and more on alternative products such as pumps, valves, and gaskets that also would have been encountered in traditional industrial settings. In addition, alleged exposure has increased in the construction and automotive trades, as well as residential do-it-yourself ("DIY") home repair, remodeling, and shade-tree automotive maintenance.. Exhibit 7 shows this increasing trend towards non-industrial alleged exposures that implicate a new group of defendants.
Much like the case study, a majority of these plaintiffs alleging an increased level of alternative exposures still worked in the same industrial setting during the same time periods as earlier plaintiffs. For example, Exhibit 8 summarizes the percent of plaintiffs in our sample that i) have potential industrial exposures, ii) allege alternative residential DIY or shade tree automotive repair, or iii) allege both.
The sample analysis suggests that the mesothelioma plaintiff population in the Philadelphia Court of Common Pleas has maintained a consistent level of potential industrial exposures. However, the affirmative identification of thermal insulation products and those manufacturers and distributors associated with such products has declined significantly, as the focus of the litigation shifted to alternative exposures and defendants. For most plaintiff attorneys and their clients, there is little economic incentive to build cases against primary thermal insulation defendants since almost all of them have undergone bankruptcy reorganizations. Given the high rate of industrial exposures, however, it is likely that plaintiffs still collect significant payments from the asbestos trusts that have replaced these Reorganized Defendants.
Industrial exposures and trust claims
Asbestos trusts are designed to pay claims expeditiously and with minimal administrative and transactional costs. To accomplish this, most trusts have established presumptive medical and exposure criteria to quickly determine if a claim qualifies for payment. According to trust documents, claimants must demonstrate meaningful and credible exposure to asbestos-containing products manufactured, produced, distributed, sold, fabricated, installed, released, maintained, repaired, replaced, removed, or handled by the Reorganized Defendant. The trusts generally deem specific product identification through testimony by the plaintiff, plaintiff's family members, or plaintiff's co-workers sufficient to satisfy this requirement.
For many trusts, claimants can also support exposure allegations by working at a job site that appears on an Approved Site List. These Approved Site Lists are compiled through corporate records and plaintiff testimony and include locations where the Reorganized Defendant's products or operations were allegedly present for a specified period of time. In effect, these Approved Site Lists act as a proxy for co-worker testimony to further expedite the review process.
Plaintiffs can establish product exposure by being at one of these locations at a time when the predecessor company's asbestos-containing products or operations were also allegedly present. Not all trusts have Approved Site Lists, and those Approved Site Lists that do exist can have sites appended periodically. In addition to Approved Site Lists, certain trusts also provide an Approved Industry List of approved occupations and/or industries where the Reorganized Defendants' products or operations were presumed to be present.
To supplement the alleged product exposures in our sample, we compared the work histories of each plaintiff with a case filed after 2000 to the Approved Site Lists or Approved Industry Lists for those trusts that have one. Exhibit 9 summarizes the impact supplemental matches to trust Approved Sites and Industries can have on raising the profile of Reorganized Defendants in the absence of affirmative product identification in the tort case disclosures.
Exhibit 10 shows how consistent the results of the supplemental trust claim analysis are with pre-Bankruptcy Wave product identification patterns. Prior to the Bankruptcy Wave, the cases in our sample identified, on average, over eight thermal insulation or refractory defendants that eventually filed for bankruptcy reorganization by 2004. This number dropped between 2001 and 2005 to an average of five, and then to less than four between 2006 and 2010. However, when supplemented with Approved Site and Industry List matches, the plaintiffs in the cases filed post-2000 would qualify for compensation from 10 trusts on average.
The asbestos trust waiting game
As evidenced in the sample data, there is a systemic shift away from Reorganized Defendant product identification. It is no longer in a plaintiff attorney's economic interest to build or concentrate a case against those Reorganized Defendants in the tort system. Rather, it is in the plaintiff attorney's economic interest to build a case in state court against the peripheral and new defendants and subsequently seek asbestos trust claim payments once they have reached settlement with a number of tort defendants. The timing and lack of transparency in this dual claim and compensation system can affect the way liability is allocated among the remaining defendants. If exposures to Reorganized Defendant products are not being disclosed in the tort case, then the relative liability risk increases for peripheral and new defendants.
To date, traditional discovery has been difficult for defendants in Philadelphia to use as an effective tool to ascertain asbestos trust claim forms and allegations of exposure to those Reorganized Defendant products. This is due, in part, because most asbestos trusts have a three year statute of limitations from diagnosis to trust claim filing that allows a window for tort recovery prior to trust claim filing. So when discovery is conducted by defendants requesting disclosure of trust claim forms and the corresponding exposure allegations, no such evidence exists.
Exhibit 11 summarizes our findings from two cases in the sample where asbestos claim forms were produced that serve as prime examples of the delay that is occurring between tort filing and trust claim disclosures.
Case Study 1
The first case study represents a plaintiff with significant occupational exposure in industrial settings during years of heavy thermal insulation use. Consistent with our findings across the 2006-2010 sample, the case documents only identified two Reorganized Defendants even though the plaintiff worked in an occupational setting where thermal insulation product exposure would be expected. In this particular case, while exposures against Reorganized Defendants were not the focus of the product identification and exposure allegations, one could easily bridge the information gap and build a case to allocate liability to those parties through the use of trust Approved Sites and Industries. In fact, the exposure sites for the plaintiff would qualify for compensation from 20 trusts based upon Approved Site and Industry matches alone.
Eventually, evidence of asbestos trust claims were disclosed two-and-a-half years after the lawsuit was filed, and nearly a year-and-a-half after the claims were actually filed with the trusts. And when the trust filings were disclosed they included claim forms for only 6 of the 20 trusts for which the plaintiff was eligible. This supports the theory that the plaintiff attorney may have had little economic incentive to actively pursue qualifying trust payments during the pendency of the lawsuit. If pursuing trust compensation was a priority, then 20 claims would have been pursued instead of just 6, and the plaintiff could have received over $500,000 in trust payments.12
Case Study 2
The second case study represents a different and less common type of plaintiff, with only a mix of occupational and non-occupational residential construction and remodeling exposures that didn't begin until the mid to late 1970s, when many asbestos-containing products had already been phased out of the market. In this instance, the case documents did disclose the use of products from six Reorganized Defendants such as flooring, wallboards, and compounds. Despite not having any industrial exposures, it was eventually disclosed that 11 trust claim forms had been filed on behalf of the plaintiff.
Given the non-industrial nature of the exposures, none of the trust claim forms in the second case could be supported by matches to Approved Sites or Industries. Rather, the alleged exposures in these trust claim forms were predicated on specific product identification that was not otherwise disclosed in earlier interrogatories or depositions. Prior to these trust claims being disclosed only two months before trial, the active defendants in the case had no way of assuming or establishing the potential exposures to these 11 Reorganized Defendants.
The significant delay in disclosing asbestos trust claim filings and corresponding exposure allegations until just before trial is an issue at the heart of a number of current state and federal legislative proposals aimed at increasing transparency between the trust and tort systems.13 When trust claims are not pursued or disclosed until late in the tort proceedings, if at all, it creates an information asymmetry that places active defendants at a significant disadvantage when negotiating settlements in the tort system. If trust claims are not pursued in a timely manner, it conceals critical information regarding both sources of potential plaintiff compensation, as well as exposures to the products of the Reorganized Defendants that are no longer being named on the lawsuits because of their bankruptcies. As a result, the defendants and the court do not have the full information regarding the plaintiff's complete and unbiased exposure history, making it impossible to properly defend the case and allocate liability, respectively.
Defense and plaintiff attorneys negotiate settlements based on litigation risk factors. For defendants, knowing if claims are being pursued against alternative sources of compensation based on exposures to other company products and operations greatly influences their assessment of what they will likely have to pay if the case goes to trial. In the absence of this information, defendants are put in a position of agreeing to higher than appropriate settlements because the uncertainty surrounding potential trust claims naturally increases their litigation risk. Cases that do reach verdict similarly put the court and jury in an uncertain position. If information regarding exposure to Reorganized Defendant products has been withheld or concealed from the court, a jury cannot properly allocate liability against those culpable parties.
New legislation in Pennsylvania and changes to procedural rules in the Philadelphia Court has increased the economic incentive for current defendants to identify the liability share of Reorganized Defendants. The elimination of involuntary bifurcation earlier this year and the passage of the Fair Share Act in 2011 changed the paradigm of how liability is allocated in Philadelphia asbestos cases.14 The Fair Share Act transitions the state's traditional joint and several liability rules to a system more in line with proportional liability and raises the threshold to 60 %the amount of liability for any one defendant to be jointly and severally responsible for the full judgment.
Even with the current rules in place, however, defendants in Philadelphia still face challenges assigning liability to bankruptcy trusts and getting a plaintiff's exposure to Reorganized Defendants' products considered by a jury. While providing evidence of exposure to Reorganized Defendants' products under the Fair Share Act should limit the risk of active tort defendants being held jointly and several liable, those defendants are still absent the corresponding mechanism that would allow the jury to allocate liability to bankruptcy trusts.15 In order for the jury to consider and allocate liability among the full complement of potentially responsible parties, the court would need to establish procedures to ensure that trust claim forms and corresponding exposure evidence are disclosed early in tort proceedings and have the ability to place the bankruptcy trusts of the Reorganized Defendants on the verdict form.16 The sample data suggests that until such rules are instituted, the allocation of liability in the Philadelphia Court will be influenced by the disclosure, or lack thereof, of trust claim forms and the associated allegations of exposure to Reorganized Defendants.
The results from the study of the Philadelphia asbestos docket indicate that while exposures to thermal insulation products remain prevalent among today's plaintiff population, the identification of exposure to those products is greatly diminished compared to claims filed prior to the Bankruptcy Wave that had comparable (or even identical) exposure histories. Despite tens of billions of dollars in asbestos trusts currently available to pay the several shares of liability for Reorganized Defendants, including $14 billion in payments that have been made between 2006-2011, the current bankruptcy rules and lack of transparency in the asbestos trust system have prevented current defendants from discovering the extant of exposure plaintiffs received from the products of Reorganized Defendants. As a result of this incomplete disclosure, current tort defendants overpay on numerous cases.
The dramatic decline of identification to the products of Reorganized Defendants since the Bankruptcy Wave is likely not unique to the Philadelphia Court. Given the widespread distribution of products by many of the Reorganized Defendants and the national scope of the current litigation, the economic incentives for plaintiff attorneys to concentrate on alternative asbestos products is the same in Philadelphia as it is in New York, Baltimore, San Francisco or any other docket that manages a substantial number of asbestos claims. It may fluctuate between jurisdictions but it would not be surprising if the decline in identification to Reorganized Defendants found in Philadelphia is just as pronounced or possibly even more dramatic in other asbestos dockets around the country.
The enormity of the recent asbestos liability transfer from traditional to peripheral defendant in a joint and several tort is unprecedented. As a result, the longest running mass tort in U.S. history has left an enormous legal and economic burden in its wake for many of the once-peripheral and new defendants that continue to litigate asbestos claims in the tort system. Recent state and federal legislative and judicial reforms have sought to create more transparency in the asbestos trust system so state courts such as the Philadelphia Court of Common Pleas will have the knowledge about a plaintiff's full exposure history during the pendency of the tort case and can allocate liability responsibly between tort and Reorganized Defendants.
1. The companies that filed for Chapter 11 protection during the Bankruptcy Wave included AC&S, Armstrong World Industries, USG, Owens Corning/Fibreboard, Federal-Mogul, G-I Holdings, Combustion Engineering, etc… For a detailed list of all the Bankruptcy Wave debtors see Mark D. Plevin et al., Where Are They Now, Part Four: A Continuing History of the Companies That Have Sought Bankruptcy Protection Due to Asbestos Claims, 6:4 Mealey's Asbestos Bankr. Rep. (Feb. 2007).
2. William P. Shelley et al., The Need for Transparency Between the Tort System and Section 524(g) Asbestos Trusts, 17 Norton J. Bankr. L. & Prac. 257 (2008); Expert testimony of Dr. Mark Peterson, November 13, 2003 in the matter In re: Western Asbestos Company; Western MacArthur Company; and Mac Arthur Company, Chapter 11 Bankruptcy No. 02-46284 through 02-46286 (United States Bankruptcy Court for the Northern District of California Oakland Division): pg. 745 ln. 11 – pg. 745 ln. 20.
3. U.S. Environmental Protection Agency, http://www.epa.gov/iris/subst/0371.htm
5. We collected information on nearly 250 mesothelioma cases filed in the Philadelphia Court of Common Pleas between 1991 and 2010. We limited the analysis sample to the 107 cases with deposition testimony, and product identification of at least 5 asbestos-containing products. This effectively removed from our analysis sample any cases where the only depositions available were for medical professionals or family members lacking extensive knowledge of the diagnosed party's product exposure history.
7. Furthering Asbestos Claim Transparency (FACT) Act of 2012, H.R. 4369, 112th Cong. §2 (2012), Managers Package, September 21, 2012.
8. Scarcella, Marc C. and Peter R. Kelso. "Asbestos Bankruptcy Trusts: A 2012 Overview of Trust Assets, Compensation & Governance." Mealey's Asbestos Bankruptcy Report 11, no. 11 (2012), Exhibit 1.
9. Nicholson, William J., Perkel, George, Selikoff, Irving J. "Occupational exposure to asbestos: Population at risk and projected mortality – 1980-2030," American Journal of Medicine, Vol. 3, Issue 3, 1982
10. Exhibit 7 only includes product identification that is accompanied by a product manufacturer distributor, or contractor.
11. In a cross-complaint by Johns-Manville, 3 other now-bankrupt thermal insulation defendants were brought into the suit.
12. Potential recoveries based on published trust average values or equivalent when available. If not available, the Scheduled Value or equivalent was used instead
13. Ohio House Bill 380, 127th General Assembly; Supra 7
14. The Pennsylvania legislature passed the Fair Share Act (Pa.C.S. § 7102) on June 28, 2011 – applies to asbestos cases filed after its enactment; Hon. John W. Herron issued General Court Regulation No. 2012-01 on Feb. 15, 2012.
15. Mark A. Behrens. "Pennsylvania Moves Forward with Considering Asbestos Trust Recoveries when Calculating Tort System Awards." Mealeys Asbestos Litigation Report, Vol. 26, Issue 15, Sept. 7, 2011.
16. The Montgomery County, Pennslvania Court of Common Pleas and the Kanawha County Circuit Court in West Virginia passed Case Management Orders in 2010 mandating the disclosure of trust claim forms at least 120 days before trial; Rose A. Thibeault, et al. v. Allis Chalmers Corp. Product Liability Trust, No. 07-27545, (Pa. Comm. Pls., MontgomeryCo.), Feb. 26, 2010: In re Asbestos Personal Injury Litigation, Civil Action No. 03-C-9600 (Cir. Ct. Kanawha County, W.V.), May 14, 2010.
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