1 The Costs of Bet-the-Company Litigation HB Litigation 3 rd Annual Emerging Trends in Asbestos Litigation Conference March 3-5, 2010 Kevin E. Hexstall, Esquire Jason K. Melrath, Esquire Rawle & Henderson LLP One South Penn Square Philadelphia, PA Direct Dial: (215) Fax: (215) Pennsylvania New Jersey New York Delaware West V irginia
2 THE COSTS OF BET-THE-COMPANY LITIGATION Demands, Settlements and Verdicts are up even as Filings are down. The irony of the current state of asbestos litigation is that more than half of the largest asbestos manufacturers and suppliers in the United States are having peripheral defendants cover their bets in court or at the settlement table. Companies like Amatex, Celotex, Eagle-Pitcher Industries, Forty-Eight Insulations, Johns Manville, National Gypsum, Standard Insulation, Unarco, and UNR Industries have all declared bankruptcy, and many of them have established Section 524(g) Bankrupt Trusts to which Plaintiffs may submit out of court claims and receive compensation. Thus, peripheral defendants are often left holding the major player s bag, and Plaintiffs are double recovering in court against peripheral defendants after they have received compensation from bankrupt trusts. Indeed, defendants such as suppliers and component manufacturers are facing potential verdicts that are double that which forced the former players into bankruptcy. The inequity of the litigation and the skyrocketing verdicts force smaller peripheral defendants to take the bet. Asbestos litigation has been around long enough to become the longest and most expensive mass tort in U.S. history, involving more than 8,400 defendants and over 730,000 claimants. Filings of new claims reached their peak in 2002 and have decreased over the last seven years. However, the drop in filings is due to the decline in the filings of claims involving unimpaired non-malignancies, such as pleural disease. Many Plaintiff firms are not interested in pursuing such claims because of reform measures that have been enacted in various states, such as in Texas where the Plaintiff must show specific findings on PFTs and chest x-rays in order to proceed. In other jurisdictions, such as Pennsylvania, cases involving unimpaired nonmalignancies are placed on inactive docket until a serious injury develops. With such a marked
3 drop in filings since the beginning of the last decade, it might lead you to believe that verdicts and settlements have also dropped, because there are fewer cases to try and/or settle. However, with over 2,000 people being diagnosed with mesothelioma each year in the United States, the corresponding filings involving mesothelioma claims have remained steady. In 2008, out of the approximately 5,000 new asbestos claims filed, approximately 2,000 involved mesothelioma. The average jury verdict involving mesothelioma claims in 2008 was approximately $7 million. Here is a sampling of verdicts from across the country in the past year: California $3.4 million against Advocate Mines Limited, which operated an asbestos mine in Baie Verte, Newfoundland, Canada. Plaintiff was a former Johns Manville Transite plant worker from Beaumont, California. Mickie Worthley, et al. v. Advocate Mines Limited, et. al., 2009 Case No , San Francisco Superior Court. $8.4 million against Hamilton Materials, Inc. Plaintiff was a former drywaller from Rio Vista, California Jack Reynolds v. Hamilton Materials, Inc., 2009 Case No , San Francisco Superior Court. $1.2 million against Plant Insulation Company. Plaintiff was a former laborer from Oakland, California. Charles Johnson v. Plant Insulation Company, et al., 2009 Case No , San Francisco Superior Court. Washington State $10.2 million against Scapa Dryer Fabrics, Inc. and AstenJohnson Inc., two former manufacturers of asbestos containing dryer fabrics used on paper machines. Plaintiff was a retired paper mill worker. Henry Barabin, et al. v. Scapa Dryer Fabrics, Inc. & AstenJohnson, Inc., 2009 Case No. C RSL, United States District Court, Western District of Washington. Tennessee A Hamilton county jury returned a $1.4 million verdict against National Service Industries d/b/a North Brothers. Decedent Wayne Jackson was a pipefitter at Combustion Engineering for over thirty years, and Plaintiffs alleges exposure to pipe covering and insulation that led to his development of mesothelioma. Marian H. Jackson
4 et al. v. Breeding Insulation Co., Inc., et al., Hamilton County Circuit Court, Div. 1, Case. No. 07C936. Maryland $10.4 Million against Scapa Dryers, Inc. Plaintiff was a former paper mill worker alleging exposure to asbestos containing dryer felts manufactured by Scapa, in addition to exposure to asbestos containing pipe, cement and block insulation installed by contractor Wallace & Gale. Scapa Dryer Fabrics Inc. et al. v. Saville, No. 540, Sept. Term, 2008, 2009 WL (Md. Ct. Spec. App. Dec. 29, 2009). $20.27 Million against Georgia Pacific. Plaintiff claimed second hand exposure to sbestos from doing the laundry of her grandfather, an insulation worker in the 1960 s. Jocelyn Ferrar v. Georgia Pacific LLC, Baltimore City Circuit Court, October 2009 (citation not yet available). Taken in isolation, these verdicts above, do not really illustrate the rising cost of verdicts in asbestos litigation. The chart below will. Based on the information below, the ten year average (1999 to present) verdict in a mesothelioma case in Philadelphia was $4.70 million. Over the last five years (2004 to present), the average verdict was $4.89 million. A small increase but still in line with the ten year average. But if you look at the last three years (2006 to present), you will see that the average mesothelioma verdict has increased to $7 million. PHILADELPHIA COUNTY MESOTHELIOMA VERDICT/SETTLEMENT HISTORY TO Plaintiff Name Plaintiff Status Case Date Sex Verdict Amount at time of Report (Deceased or Living) Kolar? 12/2009 V $8.5 million Paulin? 12/2009 V $8.5 million Sorey D 4/2009 M V $4 million Mattison D (76 y.o) 4/2009 M V $4 million Hirschberg D (64.) 4/2009 M V $6 million Confalone D 3/2009 M V $1.5 million Holloway D 3/2009 V $2 million Moore D 3/2009 M V $2 million Grumley L (84) 5/2008 M V $12 million (Incl. $3 1 Reports taken from the Legal Intelligencer on line records as of 12/16/09.
5 Plaintiff Name Plaintiff Status at time of Report (Deceased or Living) Case Date Sex Verdict Amount million for Loss of Consortium) Baccus D (76) 3/2008 M V $25.2 million (includes $18.2 million punitive damages under Kentucky law) Wheeler D (67) 3/2008 M V $4 million Scherr D (71) 3/2008 M V $8.6 million Jobes D 2/2007 M V $65,000 Craven L 10/2006 M V $4 million Martin D (82) 3/2006 M V $700,000 Fessler L 6/2005 M V $1.5 million (inclues $500,000 for Loss of Consortium) Fisher D 11/2004 M V $80,000 (includes $15,000 for Loss of Consortium) Gusoff D 7/2004 M V $250,000 Hicks D (75) 6/2004 M V $5 million Andrews D 10/2003 M V $5.50 million Box D 10/2003 M V $6.60 million Rabold Died During Trial 10/2003 M V $3.50 million (68) Marisilio D (56) 11/2002 F V $4.83 million Harahan D (46) 3/2002 M V $7.5 million Hollingsworth L 3/2002 M V $1.5 million Toland L 3/2002 M V $1.5 million Eck D (54) 11/2002 M V $3.79 million Walton L (53) 6/1999 M V $2.59 million (Inc. $420K consortium) Fetzer L (66) 6/1999 M V $1.41 million (Inc. $255K consortium) Watts L 4/1997 M V $75,000 Vecchione L 4/1997 M V $2.68 million (Inc. $550K Poplaski L 4/1997 M V $1.83 million (Inc. $300K consortium) Coward L 4/1997 M V $1.43 million (Inc. $200K consortium) Baker L 6/1995 M V $2.00 million (Inc.
6 Plaintiff Name Plaintiff Status at time of Report (Deceased or Living) Case Date Sex Verdict Amount $200K consortium) Rotundo D (64) 5/1991 M V $400K Norman D (64) 3/1990 M V $1.50 million (Inc. $500K consortium) Goodyear 2 D (67) 11/1989 M V $750K Adgate D (56) 7/1984 M V $400K (Inc. $100K consortium) Increased jury awards lead to increased demands in newer cases. Increased demands during settlement negotiations leads, naturally, to increased settlement amounts that Defendants can expect to pay. But it also leads to more peripheral Defendant companies opting to take their chances at trial. Especially when faced with the inequity of settlement and the belief that a fair jury, when faced with the fact that their asbestos containing product could not have caused Plaintiff s injury, will return a defense verdict. Strategies in Betting the Company at Trial 1. Get the Bankruptcy Trust Documents Many of the companies that filed for bankruptcy have sought to use the trust provisions of Section 524(g) of the Bankruptcy Code to globally resolve their asbestos liabilities. Enacted by Congress in 1994, 11 U.S.C.A. 524(g) authorizes companies filing for bankruptcy and facing mass asbestos claims to establish and fund a trust to address and pay all present and future claims while the reorganized company is discharged from further liability to the claimants. These trusts are now engorged with funds (see below) and are paying claims to the same Plaintiffs who have taken peripheral defendants to court. Increasingly, courts around the country have ruled certain bankrupt trust documents discoverable, including the claim application 2 % Fault was assessed among Defendants.
7 completed and submitted by the Plaintiff, as well as the Trust s TDP (Trust Distribution Procedures). These application forms typically contain information as to the Plaintiff s (claimant s) asbestos exposure, and it is often the case that these statements are made under the penalty of perjury. Thus, some courts have allowed the admission of these documents to impeach credibility or to prove an alternative source of exposure. 2. Argue for Setoffs for Funds received from Bankrupt Trusts. Many of the bankrupt trusts were set up under the assumption that the asbestos litigation environment that existed in 2000 would continue, and thus the trusts budgeted accordingly. However, given that tort reform measures have made non-malignant claims no longer viable or unattractive to pursue, non-malignant filings in court and non-malignant claims to bankrupt trusts have fallen dramatically. Non-malignant filings with the Manville Trust fell from a peak of 85,000 to about 10,000 per year in 2004 and In fact, non-malignancies used to make up 50% of all claims made to bankrupt trusts, but now they make up less than 10%. 4 Thus, as of 2006, the various bankrupt trusts had over $30 billion in assets, enough to allow potential full compensation for plaintiffs injuries through settlement funds received from trusts. The figure below illustrates the breakdown of assets among the various trusts, as of Bates, Mullin et al, Commentary, Having Your Tort and Eating it Too?, Mealey s Asbestos Bankruptcy Report, Vol. 6, #4 November See Id. 5 See Id.
8 Known cash and equity assets for established and emerging bankruptcy trusts Bankruptcy trust Assets Halliburton/DII Industries $5.34 B Owens Corning/Fibreboard $4.99 B US Gypsum $3.95 B Pittsburgh Corning $3.50 B Armstrong World Industries $2.11 B Western MacArthur $2.00 B Manville $1.60 B Babcock and Wilcox $1.00 B Others $6.41 B Total $30.89 B As you can see, Plaintiffs are able to seek a double recovery, from bankrupt trusts and from solvent peripheral defendants in court. The question that courts are just now beginning to confront is whether defendants are entitled to set offs of funds Plaintiff receives from the bankrupt trusts against any verdict handed down against peripheral defendants. In Pennsylvania, a Superior Court opinion in Andalaro v. Armstrong World Indus., 799 A.2d 71 (Pa. Super. 2002) provides some precedent and guidance in these cases. The Andaloro decision addressed the provisions of the 524(g) Manville Trust and how it would apply in an asbestos case where the plaintiff had made a claim to that trust. The Court s review and analysis of the case facts, the Manville Trust Disposition Process (TDP), and its application in light of Pennsylvania law on contribution among joint tortfeasors, provides some insight and guidance not only on the applicability of the Plaintiff s settlements with the Manville Trust, but also how this Court should address the issues relating to the other trusts in which Plaintiff has made applications. In Andaloro, the Court held that under the TDP, the plaintiffs had the choice of either a pro tanto or a pro rata release with the settlement dollars allocated to the plaintiff and
9 that release, whatever its language, controlled in the Phase II portion of the trial. If the release was pro rata, the Manville settlement would be a share along with the other tortfeasors. If the settlement were pro tanto, then the settlement amount would be deducted from the verdict award before the joint tortfeasors shares were calculated. Under the pro tanto release, any shortfall between the Manville settlement number and the value of the share was the responsibility of the joint tortfeasors and they were precluded from recovering that shortfall from the trust. Therefore, depending on the provisions of the TDP and release, and the law in your jurisdiction, set offs can be obtained for the funds Plaintiffs received from bankrupt trusts. 3. Get Bankrupt Trusts on the Verdict Sheets As an Indiana appeals court said in Bondex Int l v. Ott, 774 N.E.2d 82, 87 (Ind. App. Ct. 2002), allocation of fault to [the bankrupts] does not create an award of damages, money judgment, or liquidated claim against the bankrupt non-parties or their property and does not affect the bankruptcy estates. In Pennsylvania and other jurisdictions with joint and several liability coupled with difficulties in listing bankrupt non-parties on the verdict sheet for the allocation of fault, the resources of the remaining defendants at trial are being extraordinarily taxed through a disproportionate burden. 6 To further alleviate fears that such a listing on a verdict sheet could be later construed as a judgment, the Appellate Court in Indiana held that any allocation of fault to the bankrupt nonparties could not be used against them in a subsequent legal action through the application of collateral estoppel because they would not have participated in the trial. Indeed, the Indiana court held that such a listing of a bankrupt company and an allocation of fault does not constitute an action or proceeding against the 6 Ball v. Johns-Manville Corp., 425 Pa. Super. 369, , 624 A.2d 650, 659 (1993).
10 debtor under Section 362 of the Bankruptcy Code. 7 Whether or not you are in a jurisdiction with a comparative fault statute, it is important to move for the inclusion of bankrupt non-parties on the verdict sheet in addition to settled or active defendants, since the jury may just decide that the lion share of the liability should fall on the bankrupt company or the settled former party and not on your client. 4. Recent Reversal Last October, a Court of Appeal in Florida reversed a $24.2 million verdict against Honeywell International. See Honeywell vs. Guilder, et al., 2009 WL (Fla. App. 3 Dist.) (Oct. 28, 2009). In April 2008, the Plaintiff, Dr. Stephen Guilder won one of the highest compensatory damage awards against a single defendant in mesothelioma case in Florida s history, and one of the top five largest in the United States. Honeywell appealed, arguing that the trial court erred in admitting evidence that prejudiced Honeywell at trial, as well as in refusing to set off any settlement funds received from other defendants from the final verdict against Honeywell and including third parties on the verdict form so jurors could apportion comparative fault. The Court of Appeal agreed that the evidence at issue should have at the very least been redacted to reduce its prejudicial affect, and thus the trial court errered in admitting the evidence in full. In addition, under what is commonly known in Florida as the Fabre rule, the Court ruled that Honeywell should have been allowed to have non-parties listed on the verdict form in order for the jury to properly apportion damages in the case. The Florida Supreme Court ruled in Fabre vs. Marin, 623 So. 2d 1182, 1185 (Fla. 1993), that the legislature intended that damages 7 See Id; see, e.g., Bifaro v. Rockwell Automation, 269 F. Supp. 2d 143, 148 (W.D.N.Y. 2003) ( while the bankrupt defendants will not participate in the trial they will be listed on the verdict form to protect the nonbankrupt defendant s Article 16 rights even though there is an automatic stay by virtue of the bankruptcy )(quoting Kharmah v. Metro Chiropractic Center, 733 N.Y.S. 2d 165, 166, (App. Div. 2001)).
11 be apportioned among all participants to the accident and that the only means of determining a party s percentage of fault is to compare that party s percentage to all of the other entities who contributed to the accident, regardless of whether they have been or could have been joined as defendants. The court determined that Honeywell had effectively pleaded the fault of nonparties as affirmative defenses and presented sufficient evidence of at least two non-parties. Further, the appellate court found that Honeywell was entitled to a set-off from the other settlements made in the case. The court cited Wells vs. Tallahassee Mem l Reg l Med. Ctr., Inc., 659 So. 2d 249, 254 (Fla. 1995), in which the Supreme Court of Florida held that, settlement proceeds should be divided between economic and noneconomic damages in the same proportion as the jury s award. Thus, the trial judge erred in failing to setoff the prior settlement proceeds before entering final judgment. 5. Recent Defense Verdict In June of 2009, Kevin E. Hexstall and his colleague, Scott F. Griffith, of Rawle & Henderson, LLP tried a case to verdict in Philadelphia, PA. The case, captioned Shiel v. Honeywell International, Inc., et. al, was filed in October 2006 by Richard Shiel and his wife Joan, following his diagnosis of peritoneal mesothelioma. The complaint alleged exposure to asbestos containing materials, specifically Bendix automobile brakes. In videotaped trial testimony recorded at his deposition, Shiel maintained that he had worked since age 11 or 12 assisting a family friend in changing brakes on stock cars, which were raced in the Erie, Pennsylvania area during the years 1955 to Shiel stated that he had performed approximately 25 to 35 brake jobs on those stock cars over that period. Shiel then continued to work on his own personal vehicles, performing another 10 to 15 brake jobs until 1977.
12 Shiel had testified during a December 2006 videotaped trial deposition to preserve his testimony following his diagnosis that his work with Bendix brakes was in removing the brake drum on each of the wheels of the vehicle, spraying out the dust from the used brakes with an air compressor, and then installing new Bendix brakes, which he did not grind or sand prior to installation. He stated that his only exposure to asbestos containing materials had come from working on the stock cars and his personal vehicles, and that his exposure included valve gaskets, clutches, and Bendix brakes. Shiel stated unequivocally that he had not been exposed to asbestos during the course of his full time work from 1967 to 1977 at a local porcelain enameling plant, or at any of his other retail based jobs throughout his career, which included work as a dog groomer, an automobile rust proofing applicator, an ice cream shop owner, and as part of the retail sales team at the local Walmart, from which he retired in Faced with this limited information, the Defense further investigated Shiel s claims of asbestos exposure. Knowing what the majority of the scientific and medical communities believed about brake mechanics and their exposure to chrysotile asbestos fibers found in Bendix brakes, and knowing the limited number of brake jobs Shiel had performed (which occupationally put him at approximately two weeks of full time exposure) the Defense knew there must be other exposures. The Defense turned first to an investigation of claims Plaintiff may have made to bankrupt trusts, despite Plaintiff s protestations that he had no other exposure. and found that Shiel had indeed made applications to three bankruptcy trusts: Johns Manville, National Gypsum Corporation, and Amatex Corporation, for exposures he alleged to asbestoscontaining products while working at the porcelain enameling plant from 1967 to The Amatex Trust application had been signed, sworn and verified some three weeks before his
13 deposition during which Shiel denied exposure. Each of these corporations were well known manufacturers of asbestos products, including pipe covering, furnace brick and cement. In a series of pretrial motions, the Defense argued for the admission of the bankruptcy trust documents to prove Shiel s alternative exposure history and to use the documents as impeachment of his videotaped trial testimony. In defending the asbestos medical causation, they sought to argue the theory of dose-responses : that in order to have an asbestos related disease, Shiel needed to have been exposed to asbestos containing products with sufficient frequency, regularity, and amount. Crucial to this argument was that Shiel s trust documents indicated that he at least 10 years of consistent exposure to amphibole asbestos, which was likely the medical cause of his peritoneal mesothelioma. The trial, which lasted 10 days, was tried as a reverse bifurcation, and was composed of two phases. Honeywell was the only defendant at trial. The first phase involved a determination by the jury of medical causation and monetary damages. The jury found that exposure to asbestos generally caused Shiel s peritoneal mesothelioma and awarded $732,000 to the Shiel estate. The trial proceeded to the second phase, where the jury was called upon to resolve the question of whether exposure to Bendix brakes was a substantial factor in causing Shiel s peritoneal mesothelioma. Prior to Phase II, the Court granted the motion to permit the use of the bankruptcy trust documents. The jury was shown the signed and verified bankruptcy trust documents, which established that Shiel s testimony may not have been credible as it related to the amount of asbestos to which Shiel had been exposed throughout his life. After only two hours of deliberation, the jury returned a defense verdict for Bendix on the issue of product liability and erased their earlier monetary award.