In re Garlock Sealing Techs., LLC.

Decision Date10 January 2014
Docket NumberNo. 10–31607.,10–31607.
Citation504 B.R. 71
CourtU.S. Bankruptcy Court — Western District of North Carolina
PartiesIn re GARLOCK SEALING TECHNOLOGIES, LLC., et al., Debtors.

504 B.R. 71

In re GARLOCK SEALING TECHNOLOGIES, LLC., et al., Debtors.1

No. 10–31607.

United States Bankruptcy Court,
W.D. North Carolina.

Jan. 10, 2014.


[504 B.R. 72]


C. Richard Rayburn, Jr., Shelley Koon Abel, Albert F. Durham, Ross Robert Fulton, John R. Miller, Jr., Ashley K. Neal, William Samuel Smoak, Jr., Rayburn Cooper & Durham, Charlotte, NC, Louis Adam Bledsoe, III, Garland S. Cassada, Jonathan C. Krisko, Richard C. Worf, D. Blaine Sanders, Robinson Bradshaw Hinson P.A., Charlotte, NC, Cary Schachter, Raymond P. Harris, Jr., Schachter Harris, Irving, TX, for Garlock Sealing Technologies LLC (Debtor).

Trevor W. Swett III, Leslie M. Kelleher, James P. Wehner, Jeffrey A. Liesemer, Kevin C. Maclay, Todd E. Phillips, Caplin & Drysdale, Washington, DC, Elihu Inselbuch, Caplin & Drysdale, New York, NY, Travis W. Moon, Richard S. Wright, Andrew T. Houston, Moon Wright & Houston, PLLC, Charlotte, NC, Nathan D. Finch, Motley Rice, LLC, Washington, DC, Scott L. Frost, Waters Kraus & Paul, El Segundo, CA, Jonathan A. George, Waters Kraus & Paul, Dallas, TX, Glenn C. Thompson, Hamilton Stephens Steele & Martin, Charlotte, NC, for the Official Committee of Asbestos Personal Injury Claimants.


Daniel G. Clodfelter, Hillary B. Crabtree, Mark A. Nebrig, E. Taylor Stukes, Moore & Van Allen PLLC, Charlotte, NC, for Coltec Industries, Inc.

Jonathan P. Guy, Kathleen A. Orr, Orrick, Herrington & Sutcliffe, LLP, Washington, DC, for The Future Asbestos Claimants' Representative.

ORDER ESTIMATING AGGREGATE LIABILITY

GEORGE R. HODGES, Bankruptcy Judge.

[504 B.R. 73]

This matter is before the court after a hearing to determine the reasonable and reliable estimate of Garlock Sealing Technologies, LLC's liability for present and future mesothelioma claims. The court has concluded that the amount sufficient to satisfy that obligation is $125 million. In support thereof, the court makes the following findings of fact, conclusions of law and order:

SUMMARY

Garlock produced and sold asbestos gaskets, sheet gasket material and packing used in pipes and valves that transported hot fluids in maritime, refinery and other industrial applications. Its products spent their working lives bolted between steel flanges or valves and generally wrapped with asbestos thermal insulation produced by other manufacturers. Garlock's products released asbestos only when disturbed, such as by cutting, scraping, wire brushing or grinding—procedures that were done sporadically and then generally only after the removal of the thermal insulation products which caused a “snowstorm” of asbestos dust. It is clear that Garlock's products resulted in a relatively low exposure to asbestos to a limited population and that its legal responsibility for causing mesothelioma is relatively de minimus. The Sixth Circuit has noted in an individual pipefitter's case that the comparison is as a “bucket of water” would be to the “ocean's volume.” Moeller v. Garlock Sealing Techs., LLC, 660 F.3d 950, 954–55 (6th Cir.2011).

Garlock was sued in the tort system by victims of various asbestos-related diseases starting in the early 1980s—generally in Complaints naming 20 to 50 or more defendants. By all accounts Garlock was very successful in settling (and rarely trying) such cases. By the early 2000s the focus of tort litigation had become mesothelioma wrongful death cases. Such cases presented an extraordinary environment because of the disastrous consequences of a plaintiff's verdict. Thus, even where the likelihood of an adverse verdict was small, the prospect of a huge verdict and the great expense of defending a trial drove Garlock to settle cases regardless of its actual liability.

Beginning in early 2000s, the remaining large thermal insulation defendants filed bankruptcy cases and were no longer participants in the tort system. As the focus of plaintiffs' attention turned more to Garlock as a remaining solvent defendant, evidence of plaintiffs' exposure to other asbestos products often disappeared. Certain plaintiffs' law firms used this control over the evidence to drive up the settlements demanded of Garlock. And, Garlock suffered a few large jury verdicts when such evidence was not available. Garlock continued settling cases with relative success, but at higher amounts, until its insurance was exhausted and it filed this bankruptcy case in June 2010. Involved in the present matter are over 4000 mesothelioma claimants who had sued Garlock prior to its bankruptcy filing and also an unknown number of victims who will develop mesothelioma in the future.

The purpose of this Order is to determine Garlock's responsibility for causing mesothelioma and the aggregate amount of money that is required to satisfy its liability to present claimants and future victims. The estimates of Garlock's aggregate liability that are based on its historic settlement values are not reliable because those values are infected with the impropriety of some law firms and inflated by the cost of defense. The best evidence of Garlock's aggregate responsibility is the projection of its legal liability that takes into consideration causation, limited exposure and the contribution of exposures to other products. The court has determined that $125 million is sufficient to satisfy Garlock's liability for the legitimate present and future mesothelioma claims against it.

PROCEDURAL BACKGROUND

1. This case commenced in June of 2010 with the filing of a Chapter 11 petition by Garlock Sealing Technologies, LLC and its affiliates, The Anchor Packing Company and Garrison Litigation Management

[504 B.R. 74]

Group, Ltd. An Asbestos Claimants Committee (the “ACC”) was appointed to represent existing asbestos disease claimants against the debtors. The members of the ACC are plaintiffs' law firms representing those claimants. Also, a Future Claimants Representative (the “FCR”) was appointed to represent future asbestos disease claimants. The debtors are subsidiaries of a non-filing company, Coltec Industries, Inc. (“Coltec”), which is itself a subsidiary of Enpro Industries, Inc. Although not a debtor, the court has permitted Coltec to appear and participate in all matters. Thus, the parties who have actively participated in the proceedings are Garlock, Coltec, the ACC and the FCR.

2. The parties first embarked on a mission of education because this is a case of first impression in this court. Early on, the parties presented six days of testimony on the nature of asbestos litigation in general and specifically regarding Garlock and its affiliates.

3. Garlock sought to have a determination of claims in an individual allowance proceeding. The court declined to embark on an allowance proceeding at that time. Instead, the court determined to estimate the aggregate amount of Garlock's asbestos liability for the purpose of formulating a plan of reorganization, pursuant to 11 U.S.C. §§ 502(a) & 105(a). See In Re Garlock Sealing Techs., LLC, No. 10–31607 (Bankr.W.D.N.C. Apr. 13, 2012), (Order for Estimation of Mesothelioma Claims) [Dkt. No. 2102].

4. The parties have engaged in wide ranging discovery in preparation for these estimation proceedings. The discovery included not only the normal discovery tools pursuant to the Federal Rules, but also multiple questionnaires directed at the claimants (and their law firms). These were in the nature of social science surveys and sought important information on work histories and exposure to Garlock's and other manufacturers' products. The parties also engaged expert assistance for the purpose of data compilation, financial projection and overall estimation.

5. In the due course of the base bankruptcy case, Garlock has proposed a Plan of Reorganization that would include a fund of $270 million for resolution of present and future asbestos-related claims. This estimation is necessary to consideration of that Plan or any subsequent modification to it or a competing Plan filed by another party.

6. Fundamental to the present proceedings is this court's April 2012 Order for Estimation of Mesothelioma Claims. That order establishes the goal of reaching a “reasonable and reliable estimate of the amount of Garlock's liability for present and future mesothelioma claims” and sets the course for achieving that.

7. The parties have had two distinct approaches to Estimation that were reflected in their evidence at the estimation hearing. The debtors offered a “legal liability” approach that considers the merits of the claims in aggregate by applying an econometric analysis of the projected number of claimants and their likelihood of recovery. The ACC and FCR offered a “settlement approach” based upon an extrapolation from Garlock's history of resolving mesothelioma claims in the tort system. The end products of the two approaches differ by about a billion dollars: Garlock's estimate is about $125 million and the ACC/FCR estimates are $1–1.3 billion.

8. The evidence discussed below was presented at a hearing that took place over seventeen trial days and included 29 witnesses and hundreds of exhibits. The court attempts to explain its decision and

[504 B.R. 75]

the reasoning for it by discussing in the following order:

1) The “science” evidence relating to asbestos and asbestos disease;

2) The “social science” evidence relating to practices in asbestos tort litigation;

3) The case law in asbestos estimation cases; and

4) The resulting estimation of Garlock's aggregate liability.

9. Because of the relative overwhelming magnitude of mesothelioma claims in comparison to claims based on other diseases, the parties have agreed and the court has ordered that this proceeding does not include any liability for non-mesothelioma claims or any claims against Anchor. The sole issue here is the liability of Garlock for mesothelioma.

SCIENCE EVIDENCE

10. The parties made an extensive offering of scientific evidence on a number of topics: (a) the nature of asbestos, its different types and their relative...

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