In Re Joint E. & S. Dists. Asbestos Litigation, Bankruptcy No. 82 B 11656(BRL) through 82 B 11676
| Decision Date | 12 August 1993 |
| Docket Number | Bankruptcy No. 82 B 11656(BRL) through 82 B 11676,No. CV 90-3973. |
| Citation | 830 F. Supp. 686 |
| Parties | In re JOINT EASTERN AND SOUTHERN DISTRICTS ASBESTOS LITIGATION. United States Bankruptcy Court, Southern District of New York. In re JOHNS-MANVILLE CORPORATION, et al., Debtors. Bernadine K. FINDLEY, as Executrix of the Estate of Hilliard Findley, et al., Plaintiffs, v. Donald M. BLINKEN, et al., Defendants. United States District Court, Eastern District of New York and Southern District of New York. |
| Court | U.S. District Court — Eastern District of New York |
Caplin & Drysdale, New York City by Elihu Inselbuch, Cartwright, Slobodin, Bokelman, Borowsky, Wartnick, Moore & Harris, San Francisco, CA by Harry F. Wartnick, Baron & Budd, Dallas, TX by Frederick M. Baron, for a subclass.
Hopkins & Sutter, Washington, DC by Murray Drabkin, Walter Umphrey, Alan Nisselson, for Cimino plaintiffs.
Gertler, Gertler & Vincent, New Orleans, LA by M.H. Gertler, for New Orleans plaintiffs.
Cooney & Conway, Chicago, IL by Kevin J. Conway, Kathy Byrne, for Estate of Hugh Wilson.
Paul, Weiss, Rifkind, Wharton & Garrison, New York City by Leslie Gordon Fagen, for future claimants.
Gillenwater, Nichol & Ames, Knoxville, TN by Paul T. Gillenwater, for Tennessee plaintiffs.
Patten, Wornom & Watkins, Newport News, VA by Robert R. Hatten, Glasser & Glasser, Norfolk, VA by Richard S. Glasser, Schoeman, Marsh & Updike, New York City by Michael E. Schoeman, for Virginia judgment creditors.
Davis, Polk & Wardwell, New York City by Lowell Gordon Harriss, for Manville Corp.
John H. Faricy, Jr., Minneapolis, MN, for MacArthur Co.
Debevoise & Plimpton, New York City by Anne E. Cohen, for Owens-Corning Fiberglass Co.
Steele & Sales, Seattle, WA by Katherine M. Steele, for E.J. Bartells Co.
Shea & Gardner, Washington, DC by Frederick C. Schafrick, for Center for Claims Resolution.
Hal Pitkow, Washington, DC, for Edward Venables, et al. as objecting parties.
David Austern, Gen. Counsel, Manville Personal Injury Settlement Trust, Washington, DC, for Manville Personal Injury Settlement Trust.
Donovan, Leisure, Newton & Irvine, New York City by James L. Stengel.
Peter G. Angelos by Timothy J. Hogan.
Levy, Phillips & Konigsberg by Stanley J. Levy.
Rose, Klein & Marias by Robert B. Steinberg.
Connerton, Ray & Simon by Shepard A. Hoffman.
Edward O. Moody.
Sterl F. Shinaberry.
Michael B. Serling.
Steven H. Wodka.
Brayton, Gisvold & Harley by Alan R. Brayton.
Paul, Reich & Myers by Robert Paul.
Joseph Rice.
Thomas W. Henderson.
McCarter & English by Andrew T. Berry.
Bill Ravanesi.
White Lung Ass'n by James Fite, Myles O'Malley, Paul L. Safchuck.
The Manville Personal Injury Settlement Trust (the Trust), created to distribute funds to those injured by the asbestos-containing products of the former Johns-Manville corporation, is a limited fund. By any reasonable calculation, its former, current and projected assets will be far exceeded by the full value of past, present and future asbestos claims.
In order to determine the fairness of any settlement purporting to distribute this limited fund equitably and to exercise informed oversight of the administration of the Trust's assets, the courts must be reasonably confident of the likely volume and value of future claims. To assist in this connection, appointment of a panel of experts was authorized by the district courts for the Southern and Eastern Districts of New York under Rule 706 of the Federal Rules of Evidence. That expert panel has now reported. In the interests of prompt settlement and distribution of funds to the injured as soon as practicable, a determination of the probative value of the Rule 706 report and of the probable number and value of future claims is desirable. An evidentiary hearing for that purpose is required.
This action originated with a bankruptcy proceeding initiated by the former Johns-Manville Corporation in 1982. The protections of the bankruptcy laws were sought in recognition of Johns-Manville's inability to remain solvent while paying settlements or judgments to the growing number of persons who were developing asbestos-related diseases. These injuries were caused by exposure to asbestos-related products manufactured by the debtor with knowledge of their dangers and without adequate warning to those exposed.
The reorganization plan that emerged from this bankruptcy proceeding was confirmed in 1986. See In re Johns-Manville Corp., 68 B.R. 618 (Bankr.S.D.N.Y.1986); In re Johns-Manville Corp., 66 B.R. 517 (Bankr.S.D.N.Y.1986). Appeals concluded in 1988. See Kane v. Johns-Manville Corp., 843 F.2d 636 (2d Cir.1988). To effectuate the reorganization plan, the Bankruptcy Court issued an injunction requiring all asbestos claimants with health claims against the Johns-Manville Corporation to proceed against the Trust, first by attempting settlement and then by opting for mediation or tort litigation. The Trust was funded with various assets of the debtor corporation and stock and profits of its successor, the Manville Corporation.
Even before its first payment, the Trust and plaintiffs' counsel were aware that the Trust would have troughs in funding. The clear insufficiency of Trust assets created a strong incentive for plaintiffs' attorneys to secure early settlements and judgments. The Trust's in-house operational costs and outside legal fees soon approached $100 million per year. Many settlements included provisions for deferred payment in unwarranted hopes that future profits of the Manville Corporation due to the Trust would be available to satisfy the Trust's obligations. By March of 1990, the Trust had received more than 150,000 asbestos claims, 50 percent more than the highest estimate at the time of the reorganization plan's approval. 22,386 of these claims had been settled at an average value of $42,000 — far higher than was originally estimated. The Trust was effectively without funds to meet its current and short-term obligations.
On July 9, 1990, pursuant to their authority to withdraw a case in whole or in part from the Bankruptcy Court, the United States District Courts for the Eastern and Southern Districts of New York issued an order staying payments by the Trust of judgments, settlements and legal fees. On September 18, 1990 Marvin E. Frankel was appointed as a special master and directed to hold hearings and report on the financial condition of the Trust and on whether there existed a substantial probability that continued payment of damage awards would exhaust its assets. Special Master Frankel reported on November 3, 1990 that the Trust was "deeply insolvent," estimated that the value of claims would exceed projected assets by at least three times, and stated that the Trust lacked the cash required to pay the then liquidated total of $448.5 million in claims. Intensive negotiations under the courts' direction ensued for the creation of a revised Trust Distribution Process.
On November 19, 1990 plaintiffs filed, in the District Courts and the Bankruptcy Court, a limited-fund class action complaint against the trustees of the Trust seeking a revision of the payment procedures to promote equitable compensation of all Trust beneficiaries. Counsel submitted the same day a stipulation of settlement of that class action, including a revised Trust Distribution Process. On November 23, 1990, the courts conditionally certified the class; appointed representative counsel, including a representative of future claimants; set fairness hearings; approved a form of notice; and stayed all payments by the Trust and all proceedings against it. Notice of the class certification and copies of the courts' orders were provided to counsel for all known represented claimants, to 1,500 pro se claimants, to all courts in which the Trust was a party to litigation and to other interested persons, including publication in 11 major newspapers. Fairness hearings were held over eight days in four cities.
Johns-Manville ceased manufacturing and supplying asbestos-related products in 1970. Asbestos-related diseases, however, have lengthy latency periods — some of forty years or more. New Johns-Manville-related cases continue to be filed at a current rate of between 10,000 and 12,000 per year. In view of the insolvent status of the Trust, no reasonable evaluation of the fairness of a proposed settlement of the class action could be made without a firm grasp of the likely number and value of future claims against the Trust. Beyond approval of a potential settlement, it would be impossible for the courts to monitor the ongoing administration of the Trust pursuant to that settlement without an understanding of how the income and the principal of the Trust should be allocated between payment of present beneficiaries and preservation and enhancement for the benefit of future beneficiaries.
On December 7, 1990, the district court appointed Professor Margaret E. Berger, pursuant to Rule 706 of the Federal Rules of Evidence, to consider the creation of a panel of experts to evaluate and predict the volume and type of future claims. The Rule 706 order stated in pertinent part:
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