Fumbling Toward Consistency - Valuation of Future Asbestos Personal Injury Claims in Bankruptcy

Fumbling Toward Consistency - Valuation of Future Asbestos Personal Injury Claims in Bankruptcy

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The primary obstacle to the formulation or confirmation of a consensual reorganization plan in the majority of asbestos-driven chapter 11 cases (and indeed, some may say, the only such obstacle in many of those cases) is the issue of how to appropriately value pending and future exposure-related personal injury claims. This article discusses the valuation of asbestos claims in the reorganization context and the evolution of related principles, particularly with respect to future claims, commencing with seminal case of In re Johns-Manville Corp., Case No. 82-11656 (BRL) (Bankr. S.D.N.Y), and culminating with the as-yet unresolved chapter 11 case of In re G-I Holdings Inc., Case No. 01-30135 (RG) (Bankr. D. N.J.). Due to the sheer volume of asbestos-driven bankruptcy cases filed since 1982, however, the discussion of related valuation opinions presented herein is intended to be illustrative and not exhaustive.

The history and progression of asbestos-related personal injury and property damage litigation is well-documented.1 What has been described as the "avalanche of asbestos lawsuits"2 commenced in earnest in the early 1970s and has shown little sign of abating.3 Moreover, "a just and efficient resolution of these claims has often eluded our standard legal process...."4 Thus, when efforts to resolve the asbestos problem through global settlement class actions failed,5 and in the face of the continuing absence of a federal legislative solution, an increasing number of companies have been forced to seek bankruptcy protection as the only viable method of resolving pending and future asbestos liabilities.6

The mechanism generally relied upon by mass tort debtors in the formulation and confirmation of a reorganization plan is that found in §524(g) of the Bankruptcy Code, enacted in 1994, which provides for the creation of a qualified settlement fund for present and future asbestos claimants to assume all future asbestos-related liabilities of the debtor. Section 524(g) further permits the bankruptcy court, as part of its order confirming a debtor's reorganization plan, to issue a "channeling injunction" barring all future claimants from asserting claims against the reorganized debtor and certain third parties meeting the statute's requirements. At least half of the equity value of the reorganized debtor must be vested in any trust created pursuant to §524(g), and the practical effect of the statute's provisions is that "the higher the projected cost of compensation, the more of the reorganized firm's equity must go to the trust."7 By its very nature then, a reorganization plan seeking to rely on §524(g) will almost inevitably necessitate an estimation of both pending and future asbestos liabilities for the purpose of determining plan feasibility. Such estimation proceedings, in turn, generally fall under the purview of §502(c) of the Code.8

As recently noted by the district court in In re Armstrong World Industries Inc., the Code "does not provide a roadmap for estimation."9 Judge Gambardella similarly observed in In re G-I Holdings Inc. that "the Code is silent as to the manner in which contingent or unliquidated claims are to be estimated. In general, a bankruptcy court has discretion to determine the appropriate method of estimation in light of the particular circumstances of the bankruptcy case before it."10 The only requirement is that the value of the claim be determined "in accordance with the legal rules that will govern the final amount of the claim, and there are no other limitations on the court's authority to evaluate the claim save those general principles which should inform all decisions made pursuant to the Code."11

The above principles have been applied by various courts in different asbestos-driven reorganizations with widely varying results. Arguably, the divergent and often unpredictable outcomes with respect to future claims are the result of courts' wholesale adoption of an approach recently summarized by Judge Fullam in the Owens Corning estimation proceedings, where he noted:

The first step in arriving at a reasonable estimation of the value of the unliquidated claims is to define precisely what is being estimated. Is it the value of the claims in the tort system, or [is] value measured by the procedures which will presumably be in place in administering the trust contemplated by the reorganization plan?
The claims being valued arise under state law, hence state law determines their validity and value. The basic federal rule in bankruptcy is that state law governs the substance of claims, Congress having generally left the determination of property rights in the assets of a bankrupt's estate to state law. The same principle applies to estimation proceedings under §502(c). And claims are to be valued as of the petition date. This necessarily means that the claims are to be appraised on the basis of what would have been a fair resolution of the claims in the absence of bankruptcy... In the case of the asbestos claimants, it is the amount they had a legitimate right to expect as compensation for their injuries... The values of future claims should be estimated on the same basis—i.e., what their claims would have been worth in the tort system as it existed on the petition date.

See In re Owens Corning v. Credit Suisse First Boston, 322 B.R. 719, 721-22 (D. Del. 2005) (emphasis added) (citations and internal quotation marks omitted). The development of this approach is examined below.

Johns-Manville Corporation12

Johns-Manville Corp. filed its petition under chapter 11 of the Code in 1982 in the hopes of resolving its steadily mounting asbestos-related liabilities. Manville's Second Amended Plan of Reorganization resulted from more than four years of negotiations. The revolutionary cornerstone of the Manville plan (which was the archetype for the asbestos trusts and channeling injunctions provided for by §524(g) of the Code) was its Asbestos Health Trust (AH Trust) designed to satisfy the claims of all present and future asbestos health victims.

Objections to the feasibility of the Manville plan on the basis that the AH Trust was underfunded and would be unable to satisfy the claims of pending (much less future) asbestos health claimants were raised in connection with confirmation. However, one truly striking aspect of the Manville case is that not a single objector sought to introduce evidence contra to that of the debtor with respect to projected asbestos liabilities that the AH Trust would be responsible for satisfying. Accordingly, the bankruptcy court overruled all such objections, noting that the evidence presented in support of the debtor's projections was "not unreasonable." Specifically, the bankruptcy court found that the "evidence submitted by the debtor...provides a reasonable estimation, based upon known present claimants and reasonable extrapolations from past experience and epidemiological data, of the number and amount of asbestos-related claims that the AH Trust will be required to satisfy." See In re Johns-Manville, 68 B.R. 618, 635 (Bankr. S.D.N.Y. 1986) (emphasis added).

When the Manville plan was confirmed in 1986, it was estimated that the AH Trust would receive approximately 83,000 to 100,000 claims over the projected course of its life (i.e., until 2049), and that the average settlement amount per claim would be approximately $26,000. The number of claims filed and the settlement amounts of claims resolved during the initial period of the trust's operation, however, were substantially greater than the original estimates. During its first year of operation (1989), the AH Trust settled 14,000 claims at an average value of more than $40,000. By March 31, 1990, the AH Trust had received more than 140,000 claims, substantially more than the estimate expected over the life of the trust. As a result of these and other related factors, the AH Trust became "deeply insolvent," leading to the commencement of litigation in November 1990 to restructure the trust.

Subsequently, restructured trust distribution procedures were negotiated and approved. In 1995, the AH Trust resumed payments, paying claims at 10 percent of their liquidated value (in contrast to the 100 percent distributions envisioned when the Manville plan was confirmed). In July 2001, as claims surged, the AH Trust announced that it again was revising its distribution procedures and would now pay claims at only 5 percent of their liquidated value. These reductions applied to all claims, without regard to severity of injury. Accordingly, the AH Trust reportedly is now paying serious cancer victims a total of $10,000 or less.13

Eagle-Picher and Its Progeny

The lesson learned from the Manville experience is that historical claims data cannot be taken for granted when developing a workable estimate of future asbestos personal-injury claims. The reorganization of Eagle-Picher Industries Inc.14 illustrates (and indeed, in many ways serves as the prototype for) the evolution of the sophisticated and highly adversarial estimation procedures that are typical of asbestos-driven bankruptcy cases today.15

After negotiating an agreement in principle with respect to a reorganization plan but prior to confirmation of the plan, Eagle-Picher and its affiliated debtors filed a motion to estimate the debtors' liability on account of asbestos-related personal-injury claims.16 The debtors, the Injury Claimants' Committee (ICC) and the future claimants representative (FCR) all were co-proponents of the plan. However, each offered its own expert in connection with estimation—whose conclusions, in the words of the bankruptcy court, "varied appreciably." Additionally, the official committee of unsecured creditors (UCC) and the equity committee (EC) also presented their own experts.17

With respect to future claims, the bankruptcy court in In re Eagle-Picher, 189 B.R. at 690-91, set forth the following "qualitative statement of the considerations" to be applied in estimating such liabilities:

1. First, that the estimate should be based primarily on the history of the debtors before the court, and not to analogous reorganized entities, absent a definitive showing that another product line is identical to that of debtors. This consideration, however, does not rule out consideration of "trends general to the industry, particularly regarding the rate of filing of claims."
2. The total number of claims to be expected should be estimated.
3. The estimation of claims should categorize them by disease and occupation, as well as other factors.
4. Valuation of claims should be based on settlement values for claims close to the filing date of the bankruptcy case.
5. A reasonable rate for indemnity increase with time must be determined so that a future value of filing date indemnity values can be comparable.
6. A lag time gleaned from the tort system must be determined in order that there be accuracy in projecting future values.
7. A discount rate must then be applied in order to bring the future nominal value of claims back to the filing date.

The bankruptcy court concluded that the estimate of future claims by Dr. Florence most closely met the enumerated criteria. In this regard, in addition to valuations based entirely on past experience, Dr. Florence testified that certain events suggested he increase his forecast of the number of future claims. Specifically, Dr. Florence doubled the number of asbestosis and pleural abnormality claims based on the experience of Manville and UNR Industries Inc., including UNR's reported 400 percent increase of such filings in 1994 over the prior year.18 Combining (1) Peterson's estimate of $478,000,000 for open pre-petition claims and (2) Florence's estimate of $2,024,511,000 for future claims, the bankruptcy court arrived at a total estimated value for asbestos claims of $2,502,511,000 as of the petition date.19

The methodology adopted by the bankruptcy court in Eagle-Picher, articulated in its least complicated form, is to value future claims based on the debtors' recent litigation history (i.e., indemnity values being paid) relative to the petition date, and then make what is deemed to be appropriate adjustments for industry-wide asbestos-related claim filing trends. This approach—seemingly simple on its face—is a challenging exercise to apply in practice. As demonstrated by recent estimation disputes in the asbestos-driven reorganizations of Owens Corning, Federal-Mogul/T&N Limited and Armstrong World Industries, application of the Eagle-Picher criteria can lead to wildly divergent results based on relatively minor differentials in underlying assumptions posited by competing experts.

For example, the range of competing estimates of Owens Corning's asbestos-related liability, as testified by the estimation witnesses, was $2.08 billion (Dr. Dunbar, as the banks' witness), $6.5 billion to $6.8 billion (Dr. Vazquez, the debtor's witness), $8.15 billion (Dr. Rabinowitz, for the Futures Representative), and $8.4 billion to $11.1 billion (Dr. Peterson, for the Asbestos Claimants). In the words of Judge Fullam, "[t]he differences among these estimates reflect the experts' differing views concerning whether, and to what extent, Owens Corning's extensive pre-bankruptcy history of asbestos litigation can serve as a reliable guide to the validity and value of pending and future claims, and their differing estimates of the number and validity of future claims."20

Judge Fullam never expressly cites to the Eagle-Picher estimation decision in his opinion. However, it is clear that the court embraced the Eagle-Picher criteria and was not inclined to apply anything other than what may be fairly characterized as the "standard" approach to asbestos-related claims valuation—that is, to value future claims based on the most recent indemnity values being paid by the debtor relative to the petition date, and then make what is deemed to be appropriate adjustments for industry-wide asbestos-related claim filing trends. Inherent in this approach is acceptance of the notion that the value of future claims should be estimated on the basis of what the claims "would have been worth in the tort system as it existed on the petition date" (emphasis added) and not, as the banks suggested, to fix an aggregate value measured by the procedures that presumably would be in place in administering the trust contemplated by the reorganization plan.

Despite the premise that future claims should be valued based on their worth in the tort system as it existed on the petition date, the court in Owens Corning nonetheless was willing to make adjustments to the ultimate estimated liability figure, based on the following factors that in the judge's view had likely skewed the debtor's pre-petition litigation history and indemnity values paid in favor of asbestos claimants: (1) venue-shopping ("plaintiffs filed huge numbers of asbestos lawsuits in selected state jurisdictions...noted for 'runaway' jury verdicts"), (2) mass-screenings ("triggering thousands of claims by persons who had never experienced adverse symptoms"), (3) erroneous x-ray interpretations by suspect B-readers ("certain pro-plaintiff B-readers were so biased that their readings were simply unreliable"), (4) overpayment to "unimpaired" claimants, (5) group lawsuits ("the presence of the serious cases [lumped together with questionable claims] tended to result in higher verdicts or settlements for the 'unimpaired' cases"), (6) global settlements (which "tended to overvalue the less meritorious cases...[and] encourage law firm efforts to recruit more claimants"), and (7) punitive damages ("the dollar amounts of verdicts and settlements pre-bankruptcy included, or may have been impacted by, punitive damages or the threat of such damages"). Owens Corning, 322 B.R. at 723.

Any future reliance in similar cases upon the "adjustment factors" utilized by Judge Fullam, however, were cast into serious doubt by the subsequent decision of In re Federal-Mogul Global Inc., et al., 330 B.R. 133 (D. Del. 2005).

As was the case in Owens Corning, the district court in Federal-Mogul/T & N was confronted with estimates submitted by well-respected experts, but based on radically different assumptions and resulting in a $9 billion dollar gulf between the expert's estimates.21 And like Judge Fullam in Owens Corning, the court in Federal-Mogul/T&N determined that it "must make reasonable adjustments based on the record created at trial and embrace the methodology it finds more reliable, while remaining vigilant to the potential bias that a party's expert may have on his or her estimation figures."22 However, Judge Rodriguez expressly declined to adjust estimated future claim values downward in light of the seven factors considered by Judge Fullam:

These are general allegations, and their truth here is not conceded. In addition, the record before us does not supply the factual support necessary to intelligently quantify their effect. The uncontroverted evidence at trial demonstrated that the market factors that allegedly drove up historic claim resolutions were counterbalanced by other factors, which...were considered by T&N in its settlements values... The market is just that, a market; as such, it would not be prudent to second-guess the historic resolutions that were driven by factors by both plaintiffs and defendants.... Id. at 161-62.

Another recent complement to Judge Fullam's holding in Owens Corning and Judge Rodriguez's decision in Federal-Mogul/T&N is Judge Robreno's opinion resulting from the confirmation hearing held in the case of Armstrong World Industries Inc., 348 B.R. 111 (D. Del. 2006).

In that case, the issue before the court was whether the amount designated for unsecured creditors under the debtor's reorganization plan would result in a "materially lower recovery" than that designated for asbestos personal-injury claimants. The Official Committee of Unsecured Creditors asserted that the contemplated allocation to the trust amounted to a 91.3 percent recovery for asbestos personal-injury claimants, and therefore unfairly discriminated against unsecured creditors. The proponents of the plan responded that pending and future asbestos personal injury claims would amount to at least $3.1 billion, thereby fixing asbestos personal-injury claimants' recovery at 59.5 percent (the same percentage of projected recovery as that of unsecured creditors under the plan).23

Similar to the banks' position in Owens Corning, the creditors' committee in Armstrong encouraged the court to consider a future claims analysis based on projected payouts under trust distributions procedures implemented pursuant to a reorganization plan. Specifically, the creditors' committee's expert, Dr. Chambers, utilized the ratio of malignant claims filings to non-malignant claims filings recorded by the Manville Trust in recent years, rather than looking at the debtor's "historic ratios" between malignant and non-malignant claims.24 The creditors' committee argued that it "makes good sense" to use the Manville Trust experience in 2004 and 2005 (after the trust imposed stricter medical criteria requirements) because it "reflects both (i) the changing circumstances in the state tort system and (ii) the practice of paying only legitimate claims...."

The court disagreed, opining that "use of the Manville Trust experience to predict AWI's future liability is not realistic at this time. Although the procedures implemented by the Manville Trust may indeed make good sense, the Manville Trust is not operating in the tort system—in which any estimation of AWI's future liability must assume that it will operate.... To expect AWI will exit bankruptcy into a world where the Manville Trust's criteria apply universally is not realistic." (emphasis added). Judge Robreno was, however, willing to concede "[a]though the court believes that the use of an historical ratio is the proper approach, such an approach must account for the fact that the litigation environment has changed, and that the number of nonmalignant claims filed is declining."25

In sum then, Judge Fullam in Owens Corning rejected the suggestion that future claims estimates should accord with trust distribution procedures to be implemented under a reorganization plan; he did, however, permit some "discounting" based on perceived trends in the tort system. Judge Rodriguez in the Federal-Mogul/T&N case, in turn, was not expressly confronted with the question of whether a trust-based model should be employed in future claim estimation, but he declined to do any significant discounting of his ultimate claims estimate based on alleged changes in the tort law landscape favoring defendants. Judge Robreno in Armstrong, like Judge Fullam in Owens Corning, again expressly rejected any suggestion that future claim estimates be based on or influenced by a trust-based model, although he was more amenable than Judge Rodriguez to importing into his final estimation figures certain assumptions about "changes in the litigation landscape" that presumably would lead to a decline in nonmalignant claims. Each judge, either expressly or implicitly, relied on the Eagle-Picher criteria in reaching his conclusions.

Application of the Eagle-Picher criteria, however, necessitates application of underlying assumptions. Application of underlying assumptions, in turn, hinges on which expert the court—often intuitively—deems to be more accurate or credible (or less-biased in favor of a certain result).26 Complicating matters further, the fourth enumerated criterion of the Eagle-Picher test (valuation of claims should be based on settlement values close to the petition date) often eviscerates the first enumerated criterion (that the estimate should be based primarily on the "history" of the relevant debtor), resulting in inconsistent or unpredictable "adjustments" made by the courts on a case-to-case basis. For example, the Eagle-Picher court thought that indemnity averages from 1980-90 were too remote to be applied in the future claims calculus (the debtor's bankruptcy case was filed in 1992), but that indemnity averages for the year 1990 (two years prior to the petition date) were representative. However, in Federal-Mogul, the four-year period prior to the petition date was deemed unrepresentative, and the nine-month period pre-petition was deemed to be representative of a trend to be utilized in reaching an estimate of future claims. The court in Armstrong, in turn, stated that "taking an average of several years [pre-petition] minimizes the extremes and discrepancies caused by [historical] variations" with respect to settlement averages. Id. at 132.

Other adjustments made by the courts for future trends result in a similarly subjective exercise. For example, in Federal-Mogul/T&N, the court declined to accept Dr. Peterson's conclusion—based in part on the filed-claim experience of the Manville and UNR trusts—that the future ratio of nonmalignance to cancer claims would be about 11 percent greater than that of the defined base period. In this regard, the court specifically found that "[t]he use of this historical data from other asbestos defendants, to predict a corresponding 11 percent increase in the nonmalignant ratio for T&N, is not persuasive." Federal-Mogul Global, 330 B.R. at 159. In sharp contrast is the Eagle-Picher court's incorporation into its future claims calculus Dr. Florence's assumption, based on the experience of the Manville and UNR trusts, that the number of asbestosis and pleural abnormality claims would double.

G-I Holdings Inc.

How likely is it, then, that the construct discussed above will result in predictability or consistency in the resolution of estimation disputes? Is it desirable (or even necessary) to value thousands of potential future claims—which by definition are not and never will be "in the tort system as it existed on the petition date"—by resorting to a historical claims aggregation model that makes it almost impossible to separate the number of claims from their value?27 Perhaps not, if the courts become comfortable with alternative estimation methodologies such as the one proposed in the bankruptcy case of G-I Holdings Inc.28

The debtor in G-I Holdings asserts that most of the asbestos-related personal-injury claims filed against it are illegitimate when properly analyzed. The debtor has cited to (1) the Gitlin/Johns Hopkins Study,29 (2) the 1998 audit of the Manville Trust,30 (3) the proceedings related to the Silica multi-district litigation (MDL), (4) other criticism of the use of mass screenings as the basis for claims and (5) newly proposed and/or enacted state legislation in Ohio, Georgia, Florida and Texas as compelling evidence in support of the contention that any estimate of future liabilities based purely (or even primarily) on historical claims data would be grossly overstated. In order to support this contention, the debtor sought and was granted permission to take discovery from a random sample of approximately 2,000 to 2,500 individual asbestos claimants on topics such as work history and product exposure, among other things, and to seek claimant production of medical records including original x-rays.31

The debtor's overall plan for weeding out illegitimate claims is, in summary, as follows: (1) a narrowly tailored discovery plan that will allow for collection of medical records and product exposure data from a statistically significant and random sample of claimants; (2) various medical and causation analyses to be performed by a neutral panel of medical experts and to be incorporated into the reports of the parties' valuation experts; (3) the parties can file Daubert motions to exclude unreliable expert testimony; (4) the debtor can object to the substantive validity of categories of claims on a consolidated basis by filing motions for summary judgment; (5) the court will hold "phased" estimation hearings to value the debtor's aggregate asbestos personal-injury liabilities; and (6) the debtor will propose a chapter 11 plan in accord with the court's estimation of its liabilities that includes procedures for processing asbestos personal injury claims for distribution purposes.

The bankruptcy court in G-I Holdings has approved, with certain qualifications or modifications, the first, third, fourth and fifth requests summarized above. The court denied the debtor's second request (for the appointment of a neutral panel of medical experts). Whether the sixth step of the debtor's overall strategy can and will be implemented is yet to be determined. Meanwhile, the debtor adheres to the position that no reorganization plan can be formulated in its bankruptcy case until after its asbestos liability has been estimated.

It is indeed axiomatic that state law should govern the validity and amount of the claim being estimated, and that estimated claims (including future claims) are to be valued as of the petition date. But do these two directives necessarily combine to create a system whereby the vagaries of state tort systems—rather than merely the substance of state law—must affect the global resolution of asbestos liabilities envisioned under federal bankruptcy law? And is the federal common law on each of these points so settled and concrete that no amount of creativity can budge it?

Each of the foregoing questions has expressly or implicitly been raised in the course of the bankruptcy case of G-I Holdings and its related estimation proceedings. How these questions ultimately are answered remains to be seen.


Footnotes

1 See, e.g., Issacharoff, Samuel and Witt, John Fabian, "The Inevitability of Aggregate Settlement: An Institutional Account of American Tort Law," 57 Vand. L. Rev. 1571 (2004); White, Michelle J., "Why the Asbestos Genie Won't Stay in the Bankruptcy Bottle," 70 U. Cin. L. Rev. 1319 (2002); Hensler, Deborah H., "As Time Goes By," 80 Tex. L. Rev. 1899 (2001).

2 See In re Combustion Engineering Inc., 391 F.3d 190, 200 (3rd Cir. 2005).

3 The success of asbestos worker injury litigation is usually traced to Borel v. Fibreboard Paper Products Corp., 493 F.2d 1076 (5th Cir. 1973), in which the Fifth Circuit held that that asbestos manufacturers could be held strictly liable for product-related injuries. Hensler, supra n.1.

4 Combustion Engineering, 391 F.3d at 200.

5 See Amchem Prods. v. Windsor, 521 U.S. 591, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997) (affirming denial of class certification of nationwide settlement class of asbestos claimants); Ortiz v. Fibreboard Corp., 527 U.S. 815, 119 S.Ct. 2295, 144 L.Ed.2d 715 (1999) (reversing grant of class certification in limited fund class action under Fed.R.Civ.P. 23(b)(1)(B)).

6 See White, supra note 1, at 1320 ("48 firms filed for bankruptcy due to asbestos claims between 1982 and 1999, and an additional 30 firms filed between 2000 and 2002").

7 See White, supra note 1, at 1338 (2002).

8 §502(c) of the Bankruptcy Code provides: There shall be estimated for purpose of allowance under this section— (1) any contingent or unliquidated claim, the fixing or liquidation of which, as the case may be, would unduly delay the administration of the case; or (2) any right to payment arising from a right to an equitable remedy for breach of performance....

9 See In re Armstrong World Industries Inc., 348 B.R. 111 (D. Del. 2006) at 8.

10 See In re G-I Holdings Inc., Nos. 01-30135 (RG), 01-38790 (RG) 2006 WL 2403531 at *2 (Bankr. D. N.J. Aug. 11, 2006) at 2 (internal quotation marks and citations omitted).

11 See In re Armstrong World Industries Inc., supra note 9 at 8 (internal quotation marks and citations omitted); accord In re G-I Holdings Inc., supra note 10 at 2.

12 The following recitation of facts and law relative to the Johns-Manville chapter 11 case was compiled from In re Johns-Manville Corp., 68 B.R. 618 (Bankr. S.D.N.Y. 1986); Kane v. Johns-Manville Corp., 843 F.2d. 636 (2d Cir. 1988); and Findley v. Falise (In re Joint Eastern and Southern Districts Asbestos Litigation), 878 F.Supp. 473 (E.D. & S.D.N.Y. 1995), aff'd in part, 78 F.3d 764 (2d Cir. 1996).

13 See Hensler, supra note 1 at 1919.

14 In re Eagle-Picher Industries Inc., 189 B.R. 681 (Bankr. S.D. Ohio 1995).

15 Eagle-Picher's reorganization is also noteworthy in that it is one of the first (if not the first) asbestos-driven bankruptcy cases to successfully take advantage of the provisions of the then recently enacted provisions of §524(g) of the Code.

16 The stated purposes of the estimation of asbestos claims were (1) so that a proper allocation of plan funding assets could be made as between the unsecured creditors and the personal injury trust (the "PI Trust") created by the plan, and (2) to determine whether there would be any equity available for the debtors' shareholders.

17 The various estimation experts were as follows: for the debtors, Dr. B. Thomas Florence; for the ICC, Dr. Mark A. Peterson; for the FCR, Dr. John F. Burke, Jr.; for the UCC, Scott Beiser; and for the EC, Dr. Roman L. Weil.

18 Peterson likewise testified as to a recent (from 1991-95) increase in total filings across the industry, and an increase in the proportion of filings for non-malignancies. The bankruptcy court, however, found Peterson's future claim estimate "flawed because it is based upon indemnity values averaged over the decade of the 1980s" as opposed to "indemnity values being paid in and around the filing date." Eagle-Picher, 189 B.R. at 691.

19 The UCC filed an appeal with respect to the estimation order of the bankruptcy court discussed herein. Meanwhile, the plan proponents filed an amended reorganization plan for the debtors, which used the value of $2,502,511,000 (not the $1.5 billion used in the debtors' original plan) to determine the PI Trust's allocable share of the distribution value under the plan. Subsequently, the parties reached a compromise and settlement pursuant to which they agreed, inter alia, to fix the PI Trust Share at $2 billion and to deem the UCC's appeal of the bankruptcy court's estimation order dismissed with prejudice upon the plan's effective date.

20 Upon consideration of the experts' estimations and the underlying assumptions and data presented in support of each estimation, Judge Fullam "concluded that the appropriate figure lies somewhere between Dr. Vasquez's high estimate [of $6.8 billion] and Dr. Rabinovitz's low estimate [of $8.15 billion ]." The court therefore estimated Owens Corning's total asbestos-related liability at $7 billion. Owens Corning, 322 B.R. at 725.

21 The estimation expert retained by the asbestos claimants' committee was Dr. Mark Peterson, and the property damage committee's estimation expert was Dr. Robin Cantor. Dr. Peterson calculated two aggregate estimates for T&N's pending and future claims, one based on no increase in future claims and another based on an increase in future claims. Dr. Peterson's "No Increasing" projection for all pending and future claims put T&N's liability at approximately $8.2 billion at net present value. His preferred "Increasing" projection placed T&N's liability at $11.1 billion. Dr. Cantor, in contrast, placed the net present value of all pending and future claims at $2.5 billion. After considering the evidence and the testimony of the experts, the court concluded that Dr. Peterson's estimate came closest to meeting the Eagle-Picher criteria and therefore estimated T&N's liability at $9 billion. This amount represented, the the words of the court, "a figure between Dr. Peterson's No Increasing estimate ($8.2 billion) and his Increasing estimate ($11.1 billion)...." Federal-Mogul Global, 330 B.R. at 161.

22 Id. at 156. With respect to "open" pre-petition claims, the court opined that "the only sound approach is to begin with what is known; namely, the data in the T&N database." Id. at 157. With respect to future claims, the court utilized the same seven considerations first enumerated in Eagle-Picher, discussed supra.

23 Dr. Peterson (for the Armstrong Contracting. Official Committee of Asbestos Claimants), Dr. Florence (for the Asbestos Personal Injury Claimants) and Dr. Chambers (for the Creditors' Committee) were designated as experts in the field of asbestos personal-injury claims estimation. Dr. Peterson estimated the debtor's liability for future claims to be $5.363 billion. Dr. Florence calculated 32 different estimates for the debtor's total asbestos personal injury liability, using various assumptions, and reached a median range of $4.5 billion. Dr. Chambers' estimate of the debtor's total asbestos personal injury liability was $1.96 billion.

24 Beginning in 2003, the Manville Trust revised its trust distribution procedures by imposing more rigorous medical criteria on claimants. The new procedures were first fully implemented in 2004. In 2000, the ratio of nonmalignant to malignant claims was about 9 to 1; under the new procedures, this ratio averaged about 2.2 to 1 in 2004 and 2005. Dr. Chambers used the 2.2 to 1 ratio to predict the number of future non-malignant asbestos personal injury claims against AWI.

25 Id. at 133-34. In this regard, the court noted the following factors: (1) "potential asbestos personal injury claimants are an aging population"; (2) "reform in certain jurisdictions has provided prophylactics to the adjudication of claims of questionable merit"; (3) "the introduction of more stringent requirements for the evaluation of claims...will also result in a reduction of, at least, the non-malignant claims"; and (4) "the fraudulent claims filing practices described by Judge Jack [in In re Silica Products Liability Litigation, 398 F. Supp. 2d 563 (S.D. Texas 2005)] and others are likely to result in more careful policing of claims by defendants and the courts." Armstrong, 348 B.R. at 136.

26 As just one example of many instances of the courts' sensitivity to potential bias, the court in Federal-Mogul/T&N gave greater weight to projections formulated on behalf of the federal government than to those formulated by KPMG/Peat Marwick "because a government report would likely contain less bias than a private consulting company." Federal-Mogul Global, 330 B.R. at 159. A fair query, however, is whether the (perceived) absence of bias necessarily translates to a more accurate conclusion.

27 For thorough discussions of the practice of litigation by aggregation in the asbestos personal-injury arena, see Issacharoff & Witt, supra note 1; Hensler, supra note 1; Issacharoff, "'Shocked:' Mass Torts and Aggregate Asbestos Litigation After Amchem and Ortiz," 80 Tex. L. Rev. 1925 (2002).

28 See In re G-I Holdings Inc., 2006 WL 2403531 (Bankr. D. N.J.); see also 323 B.R. 583 (Bankr. D. N.J. 2005).

29 The Gitlin/Johns Hopkins study indicates that readers associated with asbestos litigation plaintiffs had interpreted 96 percent of the chest x-rays deemed readable by the Johns Hopkins panel as consistent with asbestosis, whereas the Johns Hopkins researchers found only 4.5 percent of the same set of cases positive. According to the debtors, about 63 percent of the claimants in the Gitlin/Johns Hopkins Study also are claimants against G-I Holdings.

30 With respect to the Manville Trust, an audit conducted in 1998 concluded that for 10 doctors retained by plaintiffs, 59 percent of the readings showing abnormalities were inaccurate. The audit also indicated that 11 percent of plaintiffs claiming cancer related to asbestos exposure did not have any evidence of cancer or any other disease.

31 The discovery plan was recently approved by the bankruptcy court and will be implemented pending the outcome of an initial discovery conference.

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Wednesday, November 1, 2006