HB Litigation ConferencesEmerging Trends in Asbestos Litigation

Marina del Rey, CAMarch 3-5, 2010

Kirk T. HartleyChildress Duffy Goldblatt, Ltd.

515 North State Street, Suite 2200Chicago, Illinois 60654

312-494-0206khartley@cdglawyers.com

your insurance against insurancesm

Background Information on Chapter 11Asbestos Bankruptcies and Asbestos Trusts

Background Information on Chapter 11 Trusts

• Crowell & Moring law firm maintains publicly available lists of Chapter 11 asbestos cases, and lists of published opinions related to each case

– The link is http://www.crowell.com/PracticeAreas/Page.aspx?id=108&cid=320

• Bates White consulting firm has been following and publishing on asbestos trusts for several years

• Charley Bates and Charlie Mullin are PhD economists and recognized experts on the Chapter 11 asbestos trusts

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Background Information, cont.• Bates White has published a series of papers on the asbestos trusts, and the firm's

website provides the best resource documents available:

– Bates, Mullin and Scarcella, The Claiming Game, Vol. 25 Mealey's Litigation Report: Asbestos # 1 (Feb. 3, 2010 )(using Alameda County cases to demonstrate that some claimants will obtain significant recoveries from Chapter 11 trusts; others will not)

– Bates, Mullin and Marquardt, The Naming Game, Vo. 24 Mealey's Litigation Report: Asbestos # 15 (Sept. 2, 2009) (demonstrating patterns for naming defendants in asbestos litigation in Alameda County, and relationship to asbestos bankruptcies)

– Mullin, Trust Assets & Payments (2009) (slide presentations showing assets in selected asbestos trusts and data on payouts)

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Bates White Papers, cont.

– Bates & Mullin, Having Your Tort and Eating it Too, 6 Mealey's Bankruptcy Report, # 4 (Nov. 2006)(explaining the general nature of the asbestos trust system, and examples of expected payment values and trust assets)

– Bates & Mullin, Show Me the Money, Vol. 22 Mealey's Litigation Report: Asbestos # 21 (Jan. 3, 2007) (providing an overview of trusts, their funds, and payouts)

– Bates & Mullin, The Bankruptcy Wave Of 2000 — Companies Sunk By An Ocean Of Recruited Asbestos Claims, Vol. 21 Mealey's Litigation Report: Asbestos # 24 (Jan. 24, 2007) (describing how asbestos bankruptcies were caused by waves of tens of thousands of claims by persons with nonmalignant diseases)

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Asbestos BankruptciesDeserve More Attention

Asbestos Trusts and BankruptciesWarrant More Attention

• Legal system has not done well in dealing with mass torts , as described by Judge Weinstein in a paper that looks back at cases handled by Judge Weinstein and others

• All constituencies – plaintiffs, co-defendants, and insurers have a financial stake in what happens in bankruptcy cases

• GM and Chrysler Chapter 11 cases provide an example of why both plaintiffs and co-defendants can lose when companies exit the tort system through Chapter 11

– NERA presentation in fall 2009 estimated that shares of remaining co-defendants will go by over 20% due to GM and Chrysler existing tort system without leaving money behind

– Asbestos claimants have not given up on obtaining money from old entities or new entities

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More Attention, cont.

• Current litigation environment results from major defendants exiting the tort system very early and leaving behind far too little money

• The use of money in asbestos trusts also has been significantly influenced claims by the least sick claimants – the non-malignants

• Manville went into Chapter 11 in 1982, the Manville Trust emerged in the late 1980s, and was back in Chapter 11 within 2 years because the trust was insolvent when it opened its doors

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More Attention, cont.• History below from this page of the Manville trust website

• "Although not confirmed until October 1988, the Trust began operating in January of 1987, following the bankruptcy court's appointment of trustees. During the first seven months of…..

• In May 1988, the Trust began to negotiate settlements of the cases filed against Manville before August 1982, all of which had been stayed by the bankruptcy proceeding. Upon consummation of the Plan on November 28, 1988, the Trust was authorized to begin paying these pre-bankruptcy claims, subject to certain conditions, including the receipt of an individual proof of claim form and a signed release from each claimant. As of December 31, 1988, the Trust had settled over 12,600 claims for almost $500 million and had paid 1,200 claimants over $50 million. Claims were paid 100% of settlement value in first-in, first-out (FIFO) order. By mid-1989, an additional 48,500 post-bankruptcy claim forms had been received. By January 1992 more than 190,000 claimants were seeking compensation from the Trust."

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More Attention, cont.

• Result? New Trust Distribution Procedures and reduced payments.

• New TDPs and new – lower - payment percentages of 1995

• New TDPs and new – lower – payment percentages in 2002

• Here is a brief overview of the changes and negotiations as written by the trust

• Result? Manville Trust pays far too little today, and so remaining co-defendants today are paying far more than they should be paying (at least from a defense view of the world)

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More Attention, cont .

• So, no doubt all the bankruptcy estimates are being done correctly today , right?

• In the W.R. Grace Chapter 11 case, a Nobel Prize winning PhD economist, Dr. James Heckman, submitted an expert report indicting the bankruptcy court "liability estimation" process as having nothing to do with science

• In addition, some say that Chapter 11 is being grossly misused to allow solvent entities to exit the tort system without the pain of bankruptcy – the Quigley Chapter 11 case has been cited as such as situation

• Quigley case also is interesting as the Ad Hoc committee of lawyers for cancer claimants has argued against claiming by the least sick claimants

• The Federal-Mogul bankruptcy involved Turner & Newall – its liability estimate was a debate only between asbestos bodily injury claimants and asbestos property damage claimants

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More Attention, cont.

• Other issues? The non-malignants still have a major impact ion Chapter 11 trusts

• Massive claiming by the non-malignants was a major cause of the wave of bankruptcies in the early 2000s – see Bates & Mullin, The Bankruptcy Wave Of 2000 — Companies Sunk By An Ocean Of Recruited Asbestos Claims Vol. 21 Mealey's Litigation Report: Asbestos # 24 (Jan. 24, 2007)(describing how asbestos bankruptcies were caused by waves of tens of thousands of claims by persons with nonmalignant diseases)

• Asbestos trusts continue to see large amounts of claims from non-malignants; Manville non-malignant claims went back up in the first quarter of 2009

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More Attention, cont .

• Cancer claim values also matter , significantly

• In asbestos bankruptcies, Madison County settlement numbers are extrapolated to and applied to all cases , thus raising the numbers for every claim in the United States

– Recall that Madison County from 2000-2004 operated under Judge Byron and drove some numbers very high for some defendants

• Today, some plaintiff's firms and TDPs are moving towards trust payment values being based in part on the plaintiff's firm submitting the claims

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RAND CorporationStudy of Asbestos Trusts

Overview Regarding RANDStudy of Asbestos Trusts

• RAND Corporation is a think tank

• RAND Institute for Civil Justice previously studied asbestos litigation issues; 2005 study was landmark

• Other studies address issues, including secrecy and confidentiality in medical malpractice litigation

• The Institute for Civil Justice is advised by a Board of Overseers that includes notable plaintiff's lawyers, defense lawyers, judges, insurers, academics and advocates

• RAND 's ICJ also published an interesting study arguing that mass tort defendants do not benefit from secrecy in settlements and instead benefit from public disclosure of settlement values and use of settlement agreement clauses that assure plaintiffs an d plaintiff's counsel they are getting the same deal as all other plaintiffs and plaintiff's lawyers

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Overview Regarding RANDStudy of Asbestos Trusts, cont.

• RAND is now at work on Phase I of a study of the US Chapter 11 asbestos trusts

• RAND has presented its plans at various pubic asbestos conferences and webinars

• Phase I study is based on publicly available information from Chapter 11 bankruptcy cases

• Information is set out in Chapter 11 plan documents and trust distribution procedures (TDPs)

– Finding current TDPs is often difficult at best

• Some information on trusts also available from trust websites

• RAND has announced that it intends to present in mid-March its working drafts of trust-specific draft reports during mid-March

• Trusts and/or interested others can submit additions, corrections or other information to RAND

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Overview Regarding RANDStudy of Asbestos Trusts, cont.

• RAND has announced that it intends to release in mid-March its working drafts of trust-specific draft reports

• RAND has announced that trusts and/or interested others will be welcomed to review the draft reports and submit additions, corrections or other information

• RAND has announced that it expects to provide some amount of aggregate reporting that cuts across many of the trusts and their agents

• RAND has announced that draft reports will be published on a public website

• RAND has announced that it expects to issue final reports in June

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Overview Regarding RANDStudy of Asbestos Trusts, cont.

• RAND has announced that it may undertake a Phase II study of claimant-specific information regarding payments in the tort system and the trust system

• RAND is inviting data submissions from plaintiffs' lawyers, Chapter 11, trusts, insurers and defendants

• RAND plans to "anonoymize" the data to negate any claimed confidentiality issues

• An order by Judge Robreno in the federal MDL has already rejected some claims of confidentiality for data regarding asbestos plaintiffs, although the issues are not precisely identical

• Recent CMO order in West Virginia rejects claims that trust submissions are privileged or otherwise secret

• All interested parties are encouraged to submit data

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Issues Go Beyond Asbestos

• The issues posed by "asbestos trusts" are not stand alone issues– Chapter 11 trusts have been created for breast implants and other "toxic tort" situations

• Issues are global - outside the US, private trusts/foundations have been created in Australia, Africa/UK, and Europe to try to manage asbestos claims

• Other tort claims on the horizon may create significant waves of litigation

• Recognize that ACS data shows that almost 1.5 million cancers are diagnosed each year in the United States, and each year 500,000 people die in US die from cancer

– About 2,500- 3,000 of those are mesotheliomas

• If other cancers generate litigation regarding other products, more bankruptcies will follow

• Creating successful, transparent trusts could be very valuable for tort litigation in general– Division of financial responsibility creates additional difficulties for administering and tracking

payments, including the upcoming issues related to Medicare reimbursement claims

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Recent Orders on Discoveryof Trust Information

Recent Orders on Discovery of Trust Information

• The Court of Common Pleas of Montgomery County, Pennsylvania issued a February 22, 2010, CMO requiring that plaintiffs must file and disclose all available bankruptcy trust claims at least 120 days prior to trial. See attached order at paragraph 10.

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Recent Orders on Discovery of Trust Information, cont.

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

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

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

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

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Recent Orders on Discovery of Trust Information, cont.

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

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

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

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Follow-Up

• Questions or comments? Feel free to contact me at:

Kirk T. HartleyChildress Duffy Goldblatt, Ltd.515 North State Street, Suite 2200Chicago, Illinois 60654312-494-0206khartley@cdglawyers.com

• International asbestos litigation issues also are covered fairly frequently in my blog – www.GlobalTort.com

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APPENDIX

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