Asbestos Personal Injury Compensation

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Asbestos Personal Injury
Compensation
The Intersection of Bankruptcy Trusts
and the Tort System
HISTORICAL ASBESTOS PI PATTERNS
• 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
BANKRUPTCY TRUSTS
• 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
HOW BANKRUPTCY TRUSTS PROCESS CLAIMS
• 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.)
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THE INTERSECTION OF BANKRUPTCY TRUSTS
AND THE TORT SYSTEM
• 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
THE INTERSECTION OF BANKRUPTCY TRUSTS
AND THE TORT SYSTEM
• 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
THE INTERSECTION OF BANKRUPTCY TRUSTS
AND THE TORT SYSTEM
• 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
HOW ARE BANKRUPTCY TRUSTS DOING?
• 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
BANKRUPTCY TRUSTS
• 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
BANKRUPTCY TRUSTS
• 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
THE “FRAUD” QUESTION
• 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
THE “FRAUD” QUESTION
• 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
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THE “FRAUD” QUESTION
• 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
NEGLIGENT MISREPRESENTATION
• 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
THE INTERSECTION OF BANKRUPTCY TRUSTS
AND THE TORT SYSTEM
• 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
FEDERAL LEGISLATION
• 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
DISCOVERY IN THE TORT SYSTEM
• 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
DISCOVERY IN THE TORT SYSTEM
• 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
DISCOVERY IN THE TORT SYSTEM
• 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 12th 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
SETOFFS IN THE TORT SYSTEM
• 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
STATE LEGISLATION
• 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
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