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Asbestos Personal Injury Compensation The Intersection of Bankruptcy Trusts and the Tort System.

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Presentation on theme: "Asbestos Personal Injury Compensation The Intersection of Bankruptcy Trusts and the Tort System."— Presentation transcript:

1 Asbestos Personal Injury Compensation The Intersection of Bankruptcy Trusts and the Tort System

2 H ISTORICAL A SBESTOS PI P ATTERNS Liability is not spread evenly across potentially responsible defendants – Lead defendants carry a large portion of the total liability across cases – Secondary or “tertiary” defendants may have little immediate asbestos liability exposure Some defendants are unable to satisfy all of their liabilities – Liquidation (Chapter 7 bankruptcy or otherwise) – Reorganization (Chapter 11) Other defendants pick up bankrupt liability shares – Joint liability – Undisclosed exposures to bankrupt companies’ products 2

3 B ANKRUPTCY T RUSTS Chapter 11 – No explicit provision for future claims in the Bankruptcy Code initially – If unable to bind future victims, may not be able to reorganize – Manville and other early asbestos bankruptcy cases addressed through trust-injunction approach using Section 105(a) – Approach expressly codified at Section 524(g) of the Bankruptcy Code in 1994 Section 524(g) – Set up a trust to pay current and future asbestos claims – All claims against the debtor and other responsible parties channeled to the trust going forward – Reorganized debtor emerges free from asbestos liability – Current and future victims look to trust for compensation Roughly 40 active trusts controlling $30+ billion today 3

4 H OW B ANKRUPTCY T RUSTS P ROCESS C LAIMS Plaintiff submits a claim – Fill out trust-specific or multi-trust form provided by trust administrator – Identify work history, exposures, asserted injury, etc. Expedited vs. individual review – GAO Report states that roughly 97-98% pursue expedited review – Trusts that break out according to expedited/individual review have far higher rates of individual review Rates may be substantially higher for malignancy claims than nonmalignancy claims Trust administrator reviews claim – May require more information, etc. – If approved, may still have back-and-forth over value, depending on the trust Claim payment – All active trusts pay only a percentage of settled value (the payment percentage) – Some also place other limits on payments (MAPs, etc.) 4

5 T HE I NTERSECTION OF B ANKRUPTCY T RUSTS AND THE T ORT S YSTEM Most trusts treat all claim forms and other communications as confidential settlement discussions subject to applicable state and federal privileges – Most will not respond to informal inquiries; typically require a valid subpoena – Upon receiving the subpoena, the trust will advise the claimant immediately – On their own initiative or at the request of the claimant, trusts will take “all necessary and appropriate steps to preserve said privileges” Trust documents do not, however, relieve claimants from complying with their own discovery obligations under applicable state law 5

6 T HE I NTERSECTION OF B ANKRUPTCY T RUSTS AND THE T ORT S YSTEM Many trusts expressly note that “failure to identify [the trust defendant’s] products in the claimant’s underlying tort action, or to other bankruptcy trusts, does not preclude the claimant from recovering from the [trust], provided the claimant otherwise satisfies the medical and exposure requirements of the Asbestos TDP” [Kaiser Aluminum & Chemical Corporation Asbestos Personal Injury Trust TDP, § 5.7(b)(3)] Audits and quality controls appear to vary dramatically across trusts – TDP’s vary on audits; most require TAC approval – Some have outside organizations conduct audits; others do not – Some track claims across multiple data points; others do not appear to track other than in very broad categories – No universal audit system – No evidence of actual oversight by bankruptcy courts here 6

7 T HE I NTERSECTION OF B ANKRUPTCY T RUSTS AND THE T ORT S YSTEM Trust  Trust Communication – TDP’s appear to preclude sharing discovery of fraud or abuse with other trusts – May occur where same administrator manages multiple trusts, but appears haphazard Trust  Tort Communication – State law/procedure governs discovery May require plaintiffs and/or trusts to disclose CMO’s in some key jurisdictions address, but questions about enforceability of these requirements – May defeat by delaying trust submissions; disagreement among plaintiffs’ lawyers concerning doing so 7

8 H OW ARE B ANKRUPTCY T RUSTS D OING ? Three basic objectives of Section 524(g) [In re Plant Insulation Co., 469 B.R. 843, 859 (Bankr. N.D. Cal. 2012)]: – Equal treatment of current and future asbestos claimants – Preservation of going-concern value of debtors (for benefit of all creditors, current and future) – Prompt payment of meritorious asbestos claims 8

9 B ANKRUPTCY T RUSTS Appears successful with respect to last two goals: – Many defendant-debtors emerged from bankruptcy and appear to be doing well – Most trusts pay claims quickly relative to tort system Equal treatment of current and future asbestos claimants – Payment percentages have declined precipitously since 2010 (median around 14% today) Roughly ½ reduced since January 2010 Per claim payment reductions of up to 93.33% – Recent announcements suggest further reductions are likely – Four decades to go, with most expected over the next decade 9

10 B ANKRUPTCY T RUSTS Why the rapid decline? – Estimates were flawed/understated actual harm caused by asbestos use? – Increasing awareness/willingness to sue? – Foreign claims? – Intrinsic difficulty in distinguishing claims with intrinsic merit from others? – Fraud? – All of the above and other reasons? 10

11 T HE “F RAUD ” Q UESTION What do we mean by “fraud”? – Fraudulent misrepresentation? – Concealment of material information? – Negligent misrepresentation (reckless indifference to the truth)? – Innocent misrepresentation? How do we know? – Is there sufficient information to identify at the claim level? – Is there sufficient aggregate data to distinguish innocent mistakes from recurrent, one-sided “mistakes” that suggest intent or reckless indifference to the truth? 11

12 T HE “F RAUD ” Q UESTION Fraudulent misrepresentation? – Some fraudulent claims (and intent to defraud) may be established by simple mechanisms (claimant doesn’t exist, etc.) – Some may not be identified due to limited information requested – Some patterns of fraud may only be identified by discovering patterns (Silica MDL)  unlikely here What do we know? – Trusts reported no fraud when questioned by GAO; not clear what they understood “fraud” to include Inconsistent with experience in other aggregate settlements and compensation systems – Doubtful that anyone can answer this question empirically 12

13 T HE “F RAUD ” Q UESTION Concealment of material information? – Many TDP’s do not require information that might go to merit/credibility – Argument here that is fraud with respect to state tort litigation  required information but circumvented by failure to disclose claim forms/known exposures Counter here is that can get through discovery and will be subject to sanctions if conceal Fraud question aside, policy question of whether want a system that allows submission of conflicting factual assertions under penalty of perjury 13

14 N EGLIGENT M ISREPRESENTATION Indifferent to truth of representations? – Happy mistakes or innocent and isolated? Are anecdotal accounts isolated or a reflection of broader patterns? – Who made the mistake? The trust, the lawyer, the doctor or the claimant? Nonmalignancy screening claims  some repeat players “manufactured” with little regard for truth Difficulty in identifying  Appearances – Top down; identify patterns – Some trusts do not appear to even track data that might allow to identify possible answers to why claims exceed projections within categories 14

15 T HE I NTERSECTION OF B ANKRUPTCY T RUSTS AND THE T ORT S YSTEM At the federal level, the proposed FACT Act would impose aggregate and claim-level disclosure obligations on the individual bankruptcy trusts At the state level, the focus is on shaping litigants’ (primarily plaintiffs’) discovery obligations – Case Management Orders – Legislation (Ohio example) 15

16 F EDERAL L EGISLATION Introduced in 2012 and 2013; current bill is the same as the final version of the 2012 bill Focus here is on the trusts, not individual plaintiffs The trusts would be required: – To file quarterly reports describing “each demand the trust received from, including the name and exposure history of, a claimant and the basis for any payment from the trust made to such claimant” during the quarter – To disclose claim forms and supporting documentation to defendants in related state tort litigation and charge fees to cover the costs of complying with these requests 16

17 D ISCOVERY IN THE T ORT S YSTEM Most courts have concluded that trust claim forms are discoverable – Some CMO’s expressly or implicitly provide for production of the forms and supporting materials (West Virginia, NYC) – Courts have most often sided with defendants here when plaintiffs attempt to challenge (MDL, California, NY, and others) Even so, defendants argue that this requirement may be circumvented by delaying submissions – Some lawyers simply wait to file trust claims until after the state litigation wraps up (RAND 2011) – If trust claims have not been investigated and prepared, and may never be filed, can the court compel plaintiffs to do so? 17

18 D ISCOVERY IN THE T ORT S YSTEM Section 22 of the West Virginia CMO, for example, requires statement of “any and all existing claims that may exist against asbestos trusts” no later than 120 days prior to trial. Obligation to supplement if a claim is filed after this date (must be done prior to trial). The statement must include: – An affidavit of the plaintiff or plaintiffs’ counsel “that the statement is based upon a good faith investigation of all potential claims against asbestos trusts” – Production of final executed trust claim forms with any supporting material – If the defendant satisfies burden of proving non-compliance with this section, the court may strike the case from the trial group or use “whatever other sanctions the court deems appropriate” Claimants are also required to assist in any defendant’s efforts to obtain discovery from the trusts under applicable rules of procedure, including providing consent for the release of information requested by this discovery 18

19 D ISCOVERY IN THE T ORT S YSTEM The NYC CMO likewise provides express direction concerning the timing of trust submissions (Section XV(E)(2)(l): – No later than 10 days after designation in a FIFO Trial Cluster – For extremis cases, must be filed no later than 90 days before trial March 12 th recommendation by the new Special Master suggests that exchange of trust claim forms should conform to this same timetable. Cases that are not in compliance with this requirement will not be transferred to a trial judge and deemed trial ready. 19

20 S ETOFFS IN THE T ORT S YSTEM Some courts expressly allow for setoff of trust payments Under the West Virginia CMO, for example: – Defendants are entitled to setoffs for trust payments under Section 22(E) – The claimant may be required to disclose “the total amount received or reasonably expected to be received from the bankruptcy proceedings, or any settling defendant” – For payments not yet received, the claimant “shall assign to all defendants against whom the judgment is rendered his or her rights to all unpaid bankruptcy claims, whether filed with trust or not, and the claimant shall cooperate with and assist the defendants in obtaining damages due and owing to claimant from each asbestos trust….” 20

21 S TATE L EGISLATION Ohio Asbestos Claims Transparency Act, H.B. 380, passed in 2012: – Not as much a public transparency law as a discovery management law. Focus is on state tort plaintiffs rather than the trusts. – Plaintiffs must provide defendants with a sworn statement “identifying all existing asbestos trust claims” made by the plaintiff and “all claims material pertaining to each identified asbestos trust claim” within 30 days of the commencement of discovery or submission of the trust claim – Defendants are authorized to request a stay of the state tort action for the purpose of requiring the plaintiff to submit additional claims to bankruptcy trusts – Trust forms and supporting documentation are “presumed to be authentic, relevant to, and discoverable” and may be introduced to prove alternative causation/allocation of fault to bankrupt entities 21

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