The $200 Billion Miscarriage Of Justice Asbestos lawyers are pitting plaintiffs who aren't sick against companies that never made the stuff--and extracting billions for themselves.
(FORTUNE Magazine) – "You indicated that you walked three or four miles a day?" a defense lawyer asked plaintiff James Curry this past October in a rural courthouse in Lexington, Miss.
"Correct," answered Curry, a 65-year-old former railroad worker in seemingly good health. Curry and five co-plaintiffs were in court seeking compensation for exceedingly mild cases of asbestosis and other "asbestos-related conditions." Such conditions--scars, marks, opacities, and other imperfections in the lungs that show up in X-rays--are not necessarily accompanied by any impairment or symptom severe enough to spur someone to see a doctor. Nevertheless, most state courts recognize these conditions as "compensable injuries," that is, the proper subject of lawsuits.
Like most asbestos plaintiffs today, Curry and his co-plaintiffs were never asbestos workers per se. They were, rather, laborers, janitors, plant workers, or general maintenance men who, once in a while during their long working lives, allegedly either handled asbestos-containing products or worked in the general vicinity of others who did.
"And you also jog?" the defense lawyer asked Curry.
"No, I don't jog anymore.... I stopped after '96."
"Did you tell them at your deposition [in March 2001] that you jog?"
"Possibility that I did.... Just made a mistake."
This past Oct. 26 the jury returned a verdict for Curry and his five co-plaintiffs against three defendant corporations of $150 million--$25 million per plaintiff--in compensatory (not punitive) damages. Four defense doctors had testified that none of the plaintiffs suffered from any asbestos-related condition whatsoever, but the plaintiffs' doctor, a Jackson pulmonologist, had disagreed. None of the plaintiffs claimed to have incurred any medical expenses or to have ever lost a day of work due to asbestos exposure.
The prospect of winning verdicts like Curry's has turned the original mass tort--asbestos litigation--into the ultimate mass farce. There are now about 49,000 asbestos plaintiffs awaiting trial in Lexington, Fayette, Port Gibson, Pascagoula, and other propitious plaintiffs' venues in Mississippi, and at least 200,000 more cases nationwide--mainly concentrated in other favorable plaintiffs' locales sprinkled across such states as Texas, Louisiana, West Virginia, New York, and California. The nation's dockets are now so jammed with asbestos suits being brought on behalf of minimally injured people that lawyers who represent the truly ill are teaming up with asbestos defendants to demand reform. They fear that the marginally impaired plaintiffs will drive so many defendants bankrupt that the genuinely sick and dying will have no one left to collect from.
Total corporate asbestos liability to U.S. plaintiffs is now expected to reach $200 billion. Insurers worldwide will soak up $122 billion of that sum, according to actuarial firm Tillinghast-Towers Perrin, while the defendant corporations themselves will disgorge the remaining $78 billion. Though as recently as 15 years ago dispassionate experts predicted that a total of 100,000 people might eventually file asbestos-related claims, the most recent forecasts predict between 1.3 million and 3.1 million claims, of which only about 570,000 have yet been filed.
Until very recently, most Americans regarded asbestos litigation as a problem of the distant past. And with good reason. It has now been more than 35 years since Dr. Irving Selikoff published his medical studies definitively establishing that asbestos dust was causing horrendous diseases among asbestos workers. It has been more than 30 years since the government began imposing strict limits on workplace exposure to asbestos dust. It has likewise been at least 30 years since labor unions came to understand the dangers of asbestos dust and began warning their members to take precautions. It has been 20 to 30 years since most asbestos-containing products were phased out of production completely. As a result, instances of serious asbestosis began declining many years ago. The 1994 edition of the medical text Occupational Lung Disorders describes asbestosis as a "disappearing disease."
But while asbestosis may be disappearing from America's hospitals, it is precipitously on the rise in America's courthouses, with the rate of new filings against some defendants having nearly tripled in the past two years. Filings against one defendant surged from 31,000 in 1999, to 58,000 in 2000, to more than 91,000 last year. Almost all of that surge occurred among claimants alleging nonmalignant asbestos-related conditions like Curry's--the most subjective and least serious diagnoses.
The filings by workers in so-called nontraditional industries--industries in which employees seldom come anywhere near asbestos dust--have skyrocketed. Filings in the textile industry, for instance, jumped more than 721% in the past two years, according to one defendant's records; in the pulp and paper industries, 296%; in the food and beverage industries, 284%. Companies like Chiquita Brands, General Electric, and Sears Roebuck have all been hit with asbestos suits.
The avalanche of new claims being brought by ever less impaired plaintiffs alleging ever more marginal medical conditions caused by ever more fleeting exposures to asbestos dust has triggered a new wave of bankruptcies. Since January 2000, 16 asbestos defendants have entered Chapter 11, including boilermaker Babcock & Wilcox; glassmaker Pittsburgh Corning; insulation maker Owens Corning; floor manufacturer Armstrong World Industries; roofing-materials company G-I Holdings (formerly GAF Corp.); chemical giant W.R. Grace; construction-materials manufacturer USG Corp.; and auto-parts conglomerate Federal-Mogul Corp. Adding them to at least 39 other asbestos defendants that have sought bankruptcy protection since 1979 brings the momentary total to 55.
Each newly bankrupt company will eventually turn over most of its already dissipated shareholder value to a trust that will then divvy it up, mainly among minimally impaired claimants and their lawyers. Like the employees of Enron, employees of these reorganizing companies have seen their retirement savings vanish in a flash. At the time of Federal-Mogul's bankruptcy filing this past October, all-too-loyal employees held 16% of the company's stock, which had lost 99% of its value since January 1999. About 14% of Owens Corning's shares--which lost 97% of their value in the two years before its filing--were owned by employees. But those employees' losses have thus far gone unbemoaned by Congress.
Each time another company seeks bankruptcy protection, the prospects for all the remaining companies worsen, since the bankrupt company passes most of its liability along to them, under the ancient principle of tort law known as joint and several liability.
"The last man standing gets to pay the entire liability," summarizes Frank Macher, who became Federal-Mogul's CEO in January 2001, nine months before its Chapter 11 filing. What proved fatal to his company, he says, was its 1998 acquisition of T&N plc, a British manufacturer that carried what had seemed at the time a manageable level of U.S. asbestos liability. But as each new domino fell--Babcock & Wilcox, Owens Corning, Grace, USG--plaintiffs lawyers' demands on Federal-Mogul increased correspondingly. "Within four years," says Macher, "settlement costs went from $80 million a year to $350 million [in 2000], to a projected $400 million [in 2001]." Inundated beneath 360,000 active cases, Macher's company entered Chapter 11 in October.
Companies that once barely gave their modest asbestos liability a second thought are now trying to reassure shareholders that they can survive. The stock of oil-field supplier Halliburton Corp. fell 42% on Dec. 7 after the company, now battling 275,000 asbestos cases, sustained the latest in a series of stunning, adverse jury verdicts. In January, Moody's Investors Service began reviewing the debt rating of Georgia-Pacific, the forest-products company, due to its 62,000 cases. Dow Chemical shares fell 7.5% in a day that month, as jittery shareholders absorbed news of an asbestos settlement paid by its recently acquired Union Carbide subsidiary. Ford Motor, General Motors, and DaimlerChrysler are now defending more than 15,000 cases, and that number could rise, since claims alleging injury from asbestos in brakes and clutches increased 1,634% over the past two years.
In fact, more than 1,000 American corporations have now been named as asbestos defendants, according to a report issued last August by the RAND Institute for Civil Justice. Those companies are scattered across 44 of the 82 industrial categories used by the U.S. Department of Commerce, meaning that employers across more than half of the American economy now face asbestos liability.
How did so many American businesses find themselves hurtling toward this $200 billion black hole? Can anything be done to deflect their path?
The course of asbestos litigation over the past 30 years has been shaped less by the law of torts than by the law of unintended consequences. At every turn, well-intentioned court rulings have, in the fullness of time, backfired.
Few people doubt that the unprecedented scale of today's corporate asbestos liability stems ultimately from the unprecedented scale of yesterday's corporate wrongdoing. In the 1920s and '30s, at least some American corporate officials--now long deceased--knowingly concealed evidence that asbestos dust could cause horrendous, fatal diseases. When the first asbestos suits were filed in the 1960s, the plaintiffs were usually asbestos workers suffering from grave and crippling maladies. The most common were mesothelioma, a 100% fatal cancer; lung cancer; and severe asbestosis. Though nonmalignant, severe asbestosis may have been the most torturous of all. Its asphyxiating symptoms could drag on for years, often ending only when the victim finally suffocated to death.
Because workers were usually barred from suing their employers for occupational disease--being restricted by state law to modest workmen's compensation benefits--lawyers framed these cases as product-liability suits against the asbestos manufacturers. Once that legal theory won the imprimatur of a federal appellate court in 1973, filings picked up momentum. In the late 1970s plaintiffs lawyers began unearthing smoking-gun corporate documents showing that corporate officials had concealed asbestos' perils. As a result, by the early 1980s plaintiffs had begun to win punitive-damages verdicts, magnifying the allure of such suits to other contingent-fee plaintiffs lawyers.
As defendants tried to stanch the rising tide of cases by raising statute-of-limitations defenses, plaintiffs lawyers responded by filing cases as soon as their clients manifested the slightest trace of exposure, even if the client had not yet developed a disabling disease. Most judges allowed those suits to go forward, concerned that if the plaintiffs waited till their conditions grew worse, their cases might be dismissed for tardiness. Increasingly mild asbestosis cases were brought, as were suits on behalf of plaintiffs suffering only from pleural plaques--a scarring of the lungs that most doctors regard as harmless.
In 1982, Ronald Motley, a young plaintiffs lawyer from Charleston, S.C., won about $1 million in Pascagoula, Miss., for a shipyard worker suffering from moderate asbestosis. Motley, who would ride the crest of the asbestos wave to become the premier mass tort trial lawyer in the country, had argued that the plaintiff in that case should be compensated for his fear of developing cancer. Though awards for fear of cancer are legally controversial, many judges permit them--either overtly or covertly--out of concern that a plaintiff who later does get cancer might be either legally barred from bringing a second suit or might have no one left to collect from, the defendants having all gone bankrupt by then.
As the number of asymptomatic plaintiffs rose, a handful of jurisdictions started either rejecting them or deferring them until the plaintiffs developed disabling conditions. But liberal venue rules usually permitted plaintiffs lawyers to avoid those jurisdictions by filing their so-called unimpaireds elsewhere.
Since asymptomatic cases had become valuable, plaintiffs lawyers began seeking them out. By the mid-1980s they were organizing mass screenings, often with the cooperation of labor unions. A van equipped with radiographic equipment--an "examobile," as some were called--would roll up to a factory door, and all workers over a certain age would be invited to receive a free chest X-ray. Just before the exam, the worker would typically be asked to sign a retainer agreement, promising to be represented by a certain law firm if the X-ray came back positive for asbestos-related disease. The X-rays would then be collected and sent to a single radiologist--a credentialed specialist, albeit one working for the plaintiffs lawyer--who would sift through them, assembly-line style, looking for arguable cases of asbestosis, pleural plaques, or cancer.
There was nothing illegal or unethical in itself about staging mass screenings, and plaintiffs lawyers straight-facedly claimed that they provided a benefit to society. "I think it's a wonderful thing," says Fred Baron, the past president of the Association of Trial Lawyers of America and the head of Dallas-based Baron & Budd, which now handles about 12,000 asbestos cases. "If I have a disease, I want to know about it, and I want to be able to seek treatment for it."
Nevertheless, the purported medical benefits of screening were always dubious; asbestosis and mesothelioma are untreatable, and National Cancer Institute studies have suggested that X-rays catch lung cancer too late to reduce mortality rates. The opportunities for abuse, on the other hand, were legion. The X-rays of hundreds of screened tire workers who submitted claims in the mid-1980s to one now-bankrupt asbestos defendant were subsequently reevaluated by independent academic researchers in a paper published in November 1990. The researchers concluded that "possibly 16, but more realistically 11 of the 439 tire workers evaluated may have a condition consistent with exposure to an asbestiform mineral." A Kansas federal judge, reviewing the evidence involving the tire workers, commented that screening procedures in that case had produced "a mockery of the practices of law and medicine."
As asbestos manufacturers desperately groped for defenses against the then unfamiliar phenomenon of mass tort liability, they adopted a variety of strategies. In retrospect it has become clear that the most culpable defendant, Johns-Manville Corp., chose the shrewdest approach: early departure from the tort system. In 1982 that company, already defending 16,000 suits, shocked the business community by filing for bankruptcy protection. Then ranked 181st on the FORTUNE 500 list, with 1981 revenues of more than $2.2 billion, Johns-Manville was the largest and most vibrant industrial corporation ever to seek Chapter 11 protection. Because it had been the biggest asbestos manufacturer, plaintiffs lawyers had until then regarded it as the primary target, and had looked to it for at least 30% of their recoveries. But with the filing, Johns-Manville's treasury was lost to plaintiffs for most of the next 13 years, while the bankruptcy litigation played out, and it never fully returned.
In what would become the model followed by most asbestos defendants who later filed for reorganization in Chapter 11, Johns-Manville split into two units: the reorganized company, which went forward minus its asbestos operations and liabilities, and a trust. The trust's funds were invested so that the proceeds could be used to pay the company's asbestos victims. Most such trusts, including the Manville Trust, ultimately set up administrative processes whereby claimants, after submitting minimal proofs of exposure and an asbestos-related condition, would be paid set sums for designated medical conditions. Most trusts also paid, however, only at a greatly discounted rate--in Johns-Manville's case, 10 cents on the dollar.
With Johns-Manville effectively out of the picture by 1982, plaintiffs lawyers looked to the remaining manufacturers and distributors to make up the difference. Most of those companies turned to settlements as the most rational way of coping. Like the trusts, they essentially developed grid schedules, whereby they would offer X amount for a mesothelioma case, Y amount for a pleural plaque case, and so on. Looking back ruefully, many defendants now believe that by settling so readily for so many years they unwittingly encouraged the filing of increasingly marginal and dubious claims.
If defendants were making asbestos recoveries tantalizingly easy for plaintiffs, so were the courts. Since it was difficult, for instance, for plaintiffs to recall precisely which products they had worked with 40 years earlier, or to guess which of many asbestos products might have ultimately caused their injuries, courts relaxed the standards of proof required to link any one asbestos defendant to a plaintiff's injury. Even if a plaintiff could not recall using a defendant's product, he could sue that defendant if a co-worker remembered seeing that defendant's products at a work site.
Perhaps the most dramatic slackening of the rules came in the procedural realm, where judges increasingly joined plaintiffs and defendants in large cases and trials to keep up with their exploding asbestos dockets. Though such consolidations created grave doubts about the ability of jurors to keep the unique circumstances of each plaintiff or defendant clear in their minds, trial judges increasingly saw no alternatives. Within just two years after one federal appeals court in 1985 very cautiously okayed the joinder of four plaintiffs into one case--explaining that all four had served on the same work crew and that two were brothers--a federal trial judge consolidated 3,031 plaintiffs into a single case in Beaumont, Tex. That judge announced his plan to hold trials for representative plaintiffs, and then statistically to extrapolate those verdicts to thousands of co-plaintiffs.
Though a federal appeals court later blocked that plan, the so-called "jumbo consolidation"--in which as many as 11,000 plaintiffs and scores of defendants were joined in a single case--was soon common practice in the state courts of Texas, West Virginia, Maryland, Massachusetts, and Mississippi. Courts in West Virginia, Texas, and Mississippi allowed out-of-state plaintiffs to join those suits, even if they had never lived or worked in the forum state. As a result, by July 1999 some 9,100 asbestos plaintiffs from all over the country were suing in rural Jefferson County, Miss.--about 700 more asbestos plaintiffs than there were county residents.
Though judges turned to jumbo consolidations in an effort to get out from under their groaning caseloads, they may have unwittingly exacerbated the problem. "You think you're clearing your docket," says David Bernick, a litigator at Chicago's Kirkland & Ellis who represents three bankrupt asbestos defendants, "but what you're doing is you're widening the pipeline to the courthouse."
In the jumbo cases, a sampling of illustrative cases would typically go to trial together--in a "bouquet" trial, as it became known--and the judges would then hope that thousands of co-plaintiffs' claims could then be settled based roughly on the verdicts awarded the representative plaintiffs. But, academics have since concluded, the bouquet trials overcompensated the least injured plaintiffs by allowing them to benefit from "sympathy by association" or "the piggyback effect." In addition, jumbo consolidations tended to coerce settlements from asbestos defendants by presenting them with the so-called "Armageddon scenario." Going to trial in a jumbo case was a bet-the-company proposition, one that few defendants were willing to risk.
Wanting to avoid these bouquet trials, defendants were often willing to settle the malignant cases, but plaintiffs lawyers frequently refused unless the defendants would settle the firm's nonmalignant cases as well. Much as a movie studio might refuse to rent out a blockbuster film unless an exhibitor agrees to take five clinkers along with it, the plaintiffs lawyers held their malignant clients hostage to fetch a higher price for their nonmalignants. Though the ratios vary widely by jurisdiction, in some states nonmalignant cases now outnumber cancer cases by margins as wide as 47 to 1.
Through the 1990s, plaintiffs lawyers continued using mass screenings to conscript fresh armies of asbestos plaintiffs. Just eight screening doctors accounted for more than 70% of all the claims filed with the Manville Trust between January 1995 and April 1998. Concerned about the reliability of such diagnoses, the trust had begun auditing claims in 1995, having independent doctors reevaluate claimants' X-rays. Its doctors concluded that 38% of all the asbestosis claimants audited in 1996 suffered from no asbestos-related condition at all, while another 28% had conditions milder than had been asserted. The audits were discontinued after plaintiffs firms sued to stop them. David Austern, president of the trust's claims-paying arm, says that the high audit-failure rates probably do not reflect fraud on anyone's part, but rather the intrinsic subjectivity of X-ray interpretation, especially when the alleged diseases are so mild. "It's more art form than science," Austern says.
Many of the men now being screened held numerous jobs in their lifetimes--sandblasting, welding, painting--each of which carries its own hazards to the lungs. Consequently, asbestos defendants are very likely now paying compensation for every occupational disease known to man. Incipient or marginal asbestosis, as picked up on an X-ray, bears at least a superficial resemblance to more than 130 other lung inflammations, including scores caused by various airborne particles.
The asbestos mass tort has proven more resistant to comprehensive settlement than any other, because the class of people exposed is so enormous, the injuries so ill-defined, and the pool of potential defendants so bottomless. But the most vexing problem has been that so many asbestos-related injuries will not occur for decades. How do you negotiate a settlement with plaintiffs who don't yet exist?
An intrepid group of lawyers tried to do just that in 1993, when they announced the so-called Georgine settlement. In an agreement between about 20 asbestos defendants and many of the country's leading asbestos-plaintiffs firms--including Ron Motley's Ness Motley Loadholt Richardson & Poole--the companies settled a backlog of 14,000 cases in exchange for the plaintiffs firms' agreement to set up an administrative claims process for adjudicating all future claims. Under the new regime, future unimpaireds would get nothing unless they came down with a real illness, as defined by objective medical criteria.
But the deal, which was framed as a highly unorthodox class action settlement, needed judicial approval. And since the settling lawyers were, in effect, trying to alter the tort laws of all 50 states, the arrangement raised serious constitutional issues.
In June 1997 the U.S. Supreme Court struck down Georgine on procedural grounds, not addressing the constitutional issues. After the Court rejected a second proposed asbestos settlement in 1999, the prospect of ever hammering out a court-sanctioned, negotiated solution was laid to rest.
"We should've filed bankruptcy on the day after the Georgine settlement was overturned by the Supreme Court," says the CEO of one now-bankrupt asbestos defendant. "Every asbestos defendant should've done the same thing."
Since the most obvious asbestos defendants were, by that time, mostly out of the picture, the second- and third-tier defendants began to bear the brunt of the litigation. "The concept is picking low-hanging fruit," explains Steven Kazan, an Oakland, Calif., plaintiffs lawyer who represents almost exclusively mesothelioma victims. "In the early days of the litigation, you had Manville. Manville goes away. Next in line are the regional distributors. If they go away, next in line are the contractors who bought from them. If those guys disappear, there are cases where we very legitimately are suing the neighborhood hardware store, because that's where the guy bought asbestos joint compound, or the lumberyard where he bought asbestos shingles, or the floor company where he bought floor tiles. They say, 'All of a sudden, why me?' One answer is: 'Consider yourself lucky that we left you alone for 20 years.' We're now higher in the tree." Defense lawyers see it differently. "It's the search for the solvent bystander," says John Aldock, chairman of Shea & Gardner.
No matter how many major asbestos defendants succumbed to bankruptcy, plaintiffs always seemed able to identify the products of ever more peripheral defendants as having been present at their work sites. In fact, plaintiffs usually managed to convince juries that these afterthought defendants, who never used to be sued at all, were actually the guiltiest parties. In railroad worker Curry's case, for instance, the jury apportioned 80% of his $25 million award between the two defendants who were left in his case after scores of others had already settled before trial. (Dozens of other key potential defendants had never even been named in the suit, of course, since they had already gone bankrupt.) Specifically, the jury ordered that 60% of Curry's award be paid by ACandS Inc., a tiny Lancaster, Pa., insulation contractor that never had offices in Mississippi, never performed contracts at any of the sites where the plaintiffs worked, and sold few asbestos-containing products anywhere. For all six plaintiffs in the case, ACandS's liability came to $83.75 million, which was more than ten times the company's net asset or equity value, and more than the firm's total cumulative earnings in its 43 years of existence. (ACandS would like to appeal, according to a spokesman, but is not certain it can afford the bond required by law to do so.)
During the summer of 1997 the mysteries of the so-called product-identification phase of asbestos litigation came under scrutiny when a 20-page memo prepared by a paralegal at Baron & Budd was inadvertently turned over to defense lawyers at a deposition. The memo provided startlingly candid advice to asbestos plaintiffs about how to prepare for their depositions:
You must be able to pronounce the product name correctly and know WHICH products are pipe covering, WHICH are insulating cements, and WHICH are plastic cements.... Have a family member quiz you until you know ALL the product names listed on your Work History Sheets by heart....
Do NOT mention product names that are not listed on your Work History Sheets. The defense attorneys will jump at a chance to blame your asbestos exposure on companies that were not sued in your case.
You may be asked how you are able to recall so many product names. The best answer is to say that you recall seeing the names on the containers or on the product itself. The more you thought about it, the more you remembered....
When the memo surfaced, Baron said that neither he nor any lawyer at his firm had ever seen it before. A Baron & Budd paralegal eventually signed an affidavit in which she took sole responsibility for writing it. (She is still employed at Baron & Budd.) Nevertheless, Baron also argues in an interview that the memo doesn't actually counsel anything improper, especially when taken in context with other materials the firm provided to plaintiffs, which advised them, for instance, to tell the truth.
Judicial reactions to the memo ranged widely. One state district judge referred the memo to a Dallas County grand jury for criminal investigation, but the inquiry died. Meanwhile, in civil proceedings, a panel of the state's appellate court concluded that the memo, while "heavy-handed," was not fraudulent. In fact, the court found, it was protected by the attorney-client privilege, so the asbestos defendants were barred from making any further inquiries about it.
In May 1998, a watershed trial took place in Fayette, Miss., the county seat of rural Jefferson County. An array of twelve plaintiffs went to trial, having been selected from among the more than 1,700 then joined in a jumbo consolidation known as David Cosey. That June the jury returned a verdict of $48.5 million in compensatory damages for just those 12 individuals--including $2 million for each of at least five seemingly healthy plaintiffs. "He reported no respiratory symptoms," the plaintiffs' expert had testified about one of the men. "He had normal pulmonary function tests in all ways."
The Cosey case, as it then played out, became an unusually vivid illustration of the dreaded "Armageddon scenario." With the same jury deliberating whether to impose punitive damages on top of the $48.5 million already assessed, most defendants settled those 12 individuals' claims, many agreeing to pay every penny of the verdict, according to one lawyer familiar with the case. When a few defendants balked, however, circuit judge Lamar Pickard telephoned their representatives, according to affidavits later filed in the case. He allegedly advised those defendants that if they did not settle the remaining 1,700 co-plaintiffs' claims within 30 days, he was considering reconvening the same jury that had just ruled and having it set damages for all of their claims as well. He then allegedly implied that the defendants would not be able to appeal the resulting aggregate verdict to the Mississippi Supreme Court, because they would not be able to afford the appeal bond required under Mississippi law, which, at the time, had to cover 125% of the total judgment. The defendants settled the 12 individual claims that afternoon. They still balked, however, at settling the rest of the co-plaintiffs' claims.
Though Judge Pickard did not proceed with a trial of all 1,700 remaining co-plaintiffs, he did schedule a group trial of 63 more plaintiffs' claims for October. Five days before that trial was scheduled to begin, and after the Mississippi Supreme Court denied the defendants' emergency petition seeking, among other things, to disqualify Judge Pickard for bias, the defendants agreed to settle all the remaining 1,700 claims. (Judge Pickard declines to comment, on the grounds that a piece of the Cosey case is still pending. Mississippi relaxed its appellate bonding rules in 2001, but it is unclear whether the changes are sufficient to make much difference in practice.)
Owens Corning's share of the June 1998 Cosey verdict came to about $27 million. That blow struck the company just a few months after a new general counsel, Maura Abeln Smith, had joined it. "We looked at our position," Smith recalls, "and said, We can't be paying $27 million to $30 million for ten to 12 individual plaintiffs--even if they were sick. That would be an incredible amount of money to have to pay out per person for a company that was trying to meet its obligations to hundreds of thousands of people."
As a result, Smith and CEO Glen Hiner launched the company's National Settlement Program, whereby Owens Corning eventually reached agreements with 120 plaintiffs firms, including Ness Motley and Baron & Budd. In a sense, it was Owens Corning's own private Georgine, except that it could not be forced upon anyone. The company agreed to pay all outstanding claims for amounts listed in a grid schedule, and the plaintiffs firms, in turn, promised to recommend that their future unimpaired clients not seek reimbursement until they became sick.
Owens Corning settled about 245,000 cases through the program, over and above the roughly 200,000 it had already resolved previously. "We thought we had gone over the hump," Smith recounts.
But as claims filings rose throughout 1999 and 2000, Owens Corning's program proved unable to save the company. Periodic windfall verdicts like the one in Cosey ensured that there would always be new plaintiffs attorneys--typically the younger lawyers who had not yet made their fortunes--who insisted on taking cases to trial.
"It was the spinoffs we were having difficulty with," says CEO Hiner, referring to startup firms formed by lawyers who left more established firms, and were not bound by those firms' agreements to participate in Owens Corning's settlement program.
The situation worsened in February 2000, when Babcock & Wilcox entered bankruptcy, the first of a new line of dominoes. As each fell, plaintiffs firms ratcheted up their settlement demands on all the defendants left in the tort system. After two more defendants entered Chapter 11--and with an ominous trial date looming in Beaumont, Tex.--Owens Corning sought bankruptcy protection in October 2000.
Though Hiner and Smith had guessed wrong about their settlement program, they had guessed right about ducking the Beaumont case. In February 2001 that jury returned a $35.2 million verdict for 22 modestly injured workers--$1.6 million each--which the jury predictably apportioned primarily between the two defendants still left in the case: USG and Federal-Mogul. When USG went bankrupt in June, Federal-Mogul was left on the hook for the entire sum under the principle of joint and several liability. Federal-Mogul filed in October.
Gazing across this desolate landscape, two colonies of unbowed reformers are now plotting parallel avenues of attack upon the indomitable asbestos dragon. Though the leaders of each band profess optimism about their own prospects, they are disconcertingly skeptical about the prospects of the other camp.
One group is led by litigator Bernick, who hopes to entice federal judges presiding over bankruptcies to lead the way out of the quagmire. Now representing Babcock & Wilcox and Grace, among others, Bernick wants federal judges to appoint panels of medical experts to evaluate what he believes to be dubious scientific theories underpinning many asbestos claims today--a tactic that bore fruit for Bernick a few years ago when he was national defense counsel for Dow Corning during its breast implant litigation. Bernick believes, for instance, that independent experts will agree that the fleeting occupational exposures that form the basis of most claims today cannot really cause asbestosis. In Bernick's grand vision, the conclusions of these panels would then have a far-reaching, persuasive impact on judges throughout the country.
But while other asbestos defense lawyers would be delighted to see Bernick succeed, many consider his strategy quixotic. If nothing else, Bernick's goal of using federal bankruptcy courts to dismiss thousands of tort claims that would be permitted in the state courts where they were brought raises at least as many legal and constitutional red flags as did the Georgine settlement, which the Supreme Court felt constrained to strike down.
Accordingly, other defense lawyers place their hopes in a legislative solution. But while some still reflexively call for sweeping tort reform, most now forswear that rallying cry. "We need to save ourselves from the people who would like to do tort reform again," says Aldock, "because you never get it." Surveying 30 years of failed asbestos reform bills, Aldock and others believe that the only hope for legislative success lies in seeking very narrow fixes. Prototype legislation embodying this strategy is now being proposed by the Asbestos Alliance, a group led by the National Association of Manufacturers, but also supported by a group of plaintiffs firms that specialize in representing mesothelioma and other cancer victims.
Because of the dwindling number of plausible, solvent asbestos defendants, tension has built between the firms that represent only very sick plaintiffs, like Steve Kazan's, and larger firms that represent all plaintiffs, including the unimpaireds. "I happen to believe," says Kazan, "that the interests of the unimpaired clients in fact are better served by giving them nothing or very little now, but making sure that if they were to get sick later on there will be money for them."
In February 2000, when the most recent wave of bankruptcies began, Kazan and others with practices like his decided that their clients' interests could no longer be adequately protected by plaintiffs creditors' committees composed predominantly of lawyers like Baron. They formed a committee of their own to make sure that their point of view would be heard. That group now also supports the Asbestos Alliance's legislative approach.
The alliance proposes leaving asbestos litigation in the courts rather than trying to replace it with an administrative claims process, and it would not attempt to bar punitive damages or cap attorneys' fees--as failed initiatives of the recent past have tried to do. Instead, the alliance proposes legislation that would establish minimum objective medical criteria of actual injury that a plaintiff would have to prove before he could file suit anywhere in the country. In addition, its bill would ban jumbo consolidations and bar plaintiffs from suing outside the states where they live or were exposed.
Though most defense lawyers would favor such a bill, many are highly skeptical that it will ever pass--as anyone has to be, given the wretched history of such initiatives. Furthermore, many note, any asbestos reform supported by the Bush Administration will almost inevitably be derided as a bailout for Halliburton--Vice President Dick Cheney's old firm.
Unless the Alliance can enlist mainstream plaintiffs firms like Ness Motley into their cause--bringing with them support from labor unions and victims groups--its efforts certainly seem doomed. Still, such recruitments may not be impossible. Those firms consented once to the idea of establishing minimal medical criteria--in the context of the Georgine settlement in 1993--and, conceivably, they could be coaxed back into the reform camp again.
The other thing legislation may have going for it today is the unusual zeitgeist--the bipartisanship of the post-Sept. 11 Congress combined with the palpable sense that the wheels are simply coming off the asbestos wagon.
In November, for instance, the federal judge overseeing the Manville Trust demanded that the trust's leadership advise him on whether he should order fundamental changes in its rules. He was responding to the fact that in light of ever-multiplying claims, the trust had been forced to halve its payments on claims from 10 cents on the dollar to just 5 cents last June, and was in danger of having to shave them further, possibly to as little as 2 cents on the dollar.
Then, in January 2002, another federal judge, presiding over the consolidated pretrial proceedings of all federal asbestos cases nationwide, ordered that all nonmalignant cases initiated through mass screenings would henceforth be subject to dismissal unless the plaintiff could show independent evidence of asbestos exposure and disease.
A legible message is coming into focus. Judges, legislators, and even plaintiffs lawyers may finally be converging on an overdue consensus. After 30 years of watching lawyers game the system until they have turned it inside out, it's time to try some narrow, targeted, legislative reform.
Enough is enough.
REPORTER ASSOCIATE Ellen Florian