In re Federal-Mogul Global, Inc.

• Decision Date: 13 September 2005
• Docket Number: Bankruptcy No. 01-10578(RTL).,Civil Action No. 05-59(JHR).
• Citation: 330 B.R. 133
• Parties: In re FEDERAL-MOGUL GLOBAL INC., T & N Limited, et al., Debtors. The Official Committee of Asbestos Claimants and Eric D. Green, as the Legal Representative for Future Asbestos Claimants, Plaintiffs, v. Asbestos Property Damage Committee, Defendant.
• Court: U.S. Bankruptcy Court — District of Delaware

Page 133

330 B.R. 133

In re FEDERAL-MOGUL GLOBAL INC., T & N Limited, et al., Debtors The Official Committee of Asbestos Claimants and Eric D. Green, as the Legal Representative for Future Asbestos Claimants, Plaintiffs, v. Asbestos Property Damage Committee, Defendant.

Bankruptcy No. 01-10578(RTL).

Civil Action No. 05-59(JHR).

United States Bankruptcy Court, D. Delaware.

September 13, 2005.

Marla R. Eskin, Esq., Kathleen J. Campbell, Esq., Campbell & Levine, LLC, Wilmington, DE, Elihu Inselbuch, Esq., Nathan D. Finch, Esq., Danielle K. Graham, Esq., Caplin & Drysdale, Chartered, New York, NY, Attorneys for The Official Committee of Asbestos Claimants.

Rolin P. Bissell, Esq., Maribeth L. Minella, Esq., Young, Conaway, Stargatt & Taylor, LLP, Wilmington, DE, Attorneys for Legal Representatives for Future Asbestos Claimants.

Theodore J. Tacconelli, Esq., Ferry, Joseph & Pearce, P.A., Wilmington, DE, Michael P. Kessler, Esq., Adam P. Strochak, Esq., Peter M. Friedman, Esq., Kristin King Brown, Esq., Weil, Gotshal & Manges LLP, New York, NY, Attorneys for The Official Committee of Asbestos Personal Property Claimants.

OPINION

RODRIGUEZ, District Judge.

TABLE OF CONTENTS

                  I. Introduction ......................................................135
                 II. Findings of Fact ..................................................136
                

                     A. T & N's Liability in the United States .........................137
                        1. Limpet ......................................................137
                        2. Keasbey .....................................................137
                        3. Raw Fiber....................................................138
                        4. United Kingdom Finished products ............................138
                     B. T & N's Liability in the United Kingdom ........................138
                     C. Medical Evidence on Asbestos Related Disease ...................138
                     D. T & N's Litigation Experience in the United States .............140
                        1. Pre-1985 ....................................................140
                        2. The Asbestos Claim Facility .................................141
                        3. The Center for Claims Resolution ............................141
                        4. Post-CCR ....................................................143
                     E. T & N's Litigation Experience in the United Kingdom ............143
                     F. Estimations of Liability .......................................144
                        1. Pending United States Claims ................................144
                        2. Settlement Averages and Dismissal Rates .....................145
                        3. Future United States Claims .................................147
                        4. Aggregate United Kingdom Liability ..........................149
                     G. Plaintiffs' Criticisms of Dr. Cantor's Methodology .............149
                     H. Defendant's Criticisms of Dr. Peterson's Methodology ...........151
                III. Conclusions of Law ................................................152
                     A. Procedural History and Jurisdiction ............................152
                     B. English Law Considerations .....................................152
                     C. Estimation in Bankruptcy .......................................154
                        1. Purpose of an Estimation ....................................154
                        2. Method of the Estimation ....................................155
                     D. T & N' Liability for Asbestos Personal Injury Claims ...........157
                        1. Number of Pending and Future United States Claims............158
                        2. Settlement Averages for United States Claims ................160
                        3. Aggregate Liability in the United Kingdom ...................162
                        4. Interest and Inflation ......................................162
                        5. Conclusion ..................................................164
                

I. INTRODUCTION

This case comes before the Court as a contested matter on the estimation of the aggregate present value of pending and projected future asbestos personal injury and wrongful death claims asserted against Turner & Newall Limited, a United Kingdom company, and its non-United States subsidiary companies (collectively "T & N"). The Court has reviewed the briefs and supporting materials filed by the Official Committee of Asbestos Claimants ("ACC") and Eric D. Green, as the legal representative for the future asbestos-related personal injury claimants (collectively the "Plaintiffs" or "Personal Injury Claimants") and the Asbestos Property Damage Committee ("Defendant" or "PD Committee")¹, has considered the arguments of all interested parties, and has heard and weighed the testimony of fact and expert witnesses who testified during the five (5) day trial beginning on June 14, 2005, as well as the evidence admitted at the Estimation Hearing.²

On June 30, 2005 the parties filed proposed Findings of Fact and Conclusions of Law. On July 14, 2005, the Court heard and considered closing arguments and questioned the parties on their respective arguments and evidence. In addition, the Court received Response Briefs from each party that sought to dispute aspects of their adversary's Findings of Fact and Conclusions of Law. Furthermore, the estimation was a contested matter under Fed. R. Bankr.P. 9014. As such the Court takes judicial notice of the entire docket in the bankruptcy cases. See In re Indian Palms Assocs., Ltd., 61 F.3d 197 (3d Cir.1995). Therefore, in accordance with Fed.R.Civ.P. 52, the following represents the Court's Findings of Fact and Conclusions of Law.

II. FINDINGS OF FACT

T & N is a wholly-owed subsidiary of Federal-Mogul Global, Inc. ("Federal Mogul"), which was acquired by Federal-Mogul in March 1988 in a stock purchase. (PD Exh. 34 at 30.) The Turner and Newall families formed T & N in England in 1920, and according to T & N's National Trial and Coordinating Counsel for the United States, Paul Hanly, Esq. ("Hanly"), it first discovered the dangers of asbestos as early as 1921. (Tr. at 86-87.)³ Between 1976 and 2001, T & N resolved approximately 245,000 asbestos personal injury cases (PD Exh. 2 at 9) and has paid out nearly $835 million (present value) to resolve these claims. (Tr. at 27 (Hanly).) On October 1, 2001 (the "Petition Date"), Federal-Mogul filed for relief under Chapter 11 of the Bankruptcy Code in response to the mounting liabilities from asbestos litigation.

This estimation has created a conflict between members of the Plan Proponents and the PD Committee. The contested issue relates to the underlying Third Amended Plan of Reorganization (the "Plan"), which the PD Committee argues unfairly allocates value among the creditor constituencies. The PD Committee was not involved in the formulation in what it calls the "Central Deal," an agreement forged between the ACC and other creditors committees. (PD FOF at 14.) As it now stands, the Central Deal allocates 50.1% of the Reorganized Federal-Mogul equity (no cash) to the proposed asbestos personal trust and 49.9% of the equity to the Federal-Mogul note holders (the "Banks"). (See PD Ex. 34 at 6.) The 50.1% of the equity of the Reorganized Federal-Mogul will establish a trust in accordance with section 524(g) in the Bankruptcy Code and the Trust Distribution Procedures ("TDPs") in the Plan. Other unsecured claims, including the claims of the PD Committee, are to be decided under one of three distribution ratios of the plan, which is dependant on aggregate estimated value of asbestos personal injury claims against T & N. (PD FOF ¶ 19.) Essentially, the higher the estimate of the aggregate liability, the higher the denominator will be, thereby lowering the ratio and lowering the percentage of recovery for other, non-asbestos personal injury unsecured claims against T & N. (Id.) The asbestos personal injury claims, however, will receive the aggregate number in the numerator under any of the distribution ratios.

Therefore, the PD Committee asserts that a higher estimate of asbestos personal injury claims will suppress the amount of cash the Debtors will need to satisfy the claims of property damage claimants and other unsecured creditors of T & N, thus raising the value of the new equity securities that will be distributed to most creditor constituencies and freeing cash flow to pay interests on the new debt that will be issued to various banks. As such, the PD Committee proffers a lower estimate of aggregate liability, whereas the Personal Injury Claimants seek a larger amount. The Court's function here is not Plan confirmation; rather, the Court is charged with determining an estimation of liability for the creation of a personal injury trust, which is one of many aspects that will be considered by the Bankruptcy Court when it considers the confirmation of the Plan.

A. T & N's liability in the United States

T & N was named in its first asbestos personal injury case in the United States in August 1977. (PD Exh. 34 at 31.) By the Petition Date, approximately 114,000 lawsuits were pending in the United States (Id.) Hanly testified that T & N's liability in the United States arose out of four product lines. A brief discussion of these sources of liability is important in understanding the significant reach of T & N's asbestos containing products in the United States and the United Kingdom.

1. Limpet

The Limpet product was invented by T & N in 1931 and was distributed throughout the United States from 1934 to 1974. (Tr. at 56 (Hanly).) Limpet was a spray-on application that was used for fireproofing, insulation, condensation control, and decorative finishes. (Id.) Limpet was made of pure asbestos, either amosite or crocidolite, and had the greatest asbestos content of any product in the United States. (Id.) According to the Disclosure Statement Describing the Third Amended Plan of Reorganization (hereinafter the "Disclosure Statement" and submitted as PD Exh. 34.), the Limpet was not widely marketed or used in the United States due to its significant expense, its relatively slow spraying process and the U.S....