[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
HOW FRAUD AND ABUSE IN THE ASBESTOS COMPENSATION SYSTEM AFFECT VICTIMS,
JOBS, THE ECONOMY, AND THE LEGAL SYSTEM
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON THE CONSTITUTION
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
SEPTEMBER 9, 2011
__________
Serial No. 112-51
__________
Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://judiciary.house.gov
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COMMITTEE ON THE JUDICIARY
LAMAR SMITH, Texas, Chairman
F. JAMES SENSENBRENNER, Jr., JOHN CONYERS, Jr., Michigan
Wisconsin HOWARD L. BERMAN, California
HOWARD COBLE, North Carolina JERROLD NADLER, New York
ELTON GALLEGLY, California ROBERT C. ``BOBBY'' SCOTT,
BOB GOODLATTE, Virginia Virginia
DANIEL E. LUNGREN, California MELVIN L. WATT, North Carolina
STEVE CHABOT, Ohio ZOE LOFGREN, California
DARRELL E. ISSA, California SHEILA JACKSON LEE, Texas
MIKE PENCE, Indiana MAXINE WATERS, California
J. RANDY FORBES, Virginia STEVE COHEN, Tennessee
STEVE KING, Iowa HENRY C. ``HANK'' JOHNSON, Jr.,
TRENT FRANKS, Arizona Georgia
LOUIE GOHMERT, Texas PEDRO R. PIERLUISI, Puerto Rico
JIM JORDAN, Ohio MIKE QUIGLEY, Illinois
TED POE, Texas JUDY CHU, California
JASON CHAFFETZ, Utah TED DEUTCH, Florida
TIM GRIFFIN, Arkansas LINDA T. SANCHEZ, California
TOM MARINO, Pennsylvania DEBBIE WASSERMAN SCHULTZ, Florida
TREY GOWDY, South Carolina
DENNIS ROSS, Florida
SANDY ADAMS, Florida
BEN QUAYLE, Arizona
[Vacant]
Sean McLaughlin, Majority Chief of Staff and General Counsel
Perry Apelbaum, Minority Staff Director and Chief Counsel
------
Subcommittee on the Constitution
TRENT FRANKS, Arizona, Chairman
MIKE PENCE, Indiana, Vice-Chairman
STEVE CHABOT, Ohio JERROLD NADLER, New York
J. RANDY FORBES, Virginia MIKE QUIGLEY, Illinois
STEVE KING, Iowa JOHN CONYERS, Jr., Michigan
JIM JORDAN, Ohio ROBERT C. ``BOBBY'' SCOTT,
Virginia
Paul B. Taylor, Chief Counsel
David Lachmann, Minority Staff Director
C O N T E N T S
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SEPTEMBER 9, 2011
Page
OPENING STATEMENTS
The Honorable Trent Franks, a Representative in Congress from the
State of Arizona, and Chairman, Subcommittee on the
Constitution................................................... 1
The Honorable Jerrold Nadler, a Representative in Congress from
the State of New York, and Ranking Member, Subcommittee on the
Constitution................................................... 2
WITNESSES
Lester Brickman, Professor of Law, Benjamin N. Cardozo School of
Law
Oral Testimony................................................. 4
Prepared Statement............................................. 7
Michael Carter, Monroe Rubber & Gasket Company
Oral Testimony................................................. 41
Prepared Statement............................................. 44
Charles S. Siegel, Partner, Waters & Kraus LLP
Oral Testimony................................................. 47
Prepared Statement............................................. 49
James L. Stengel, Esq., Orrick, Herrington & Sutcliffe LLP
Oral Testimony................................................. 84
Prepared Statement............................................. 87
APPENDIX
Material Submitted for the Hearing Record
Response to Post-Hearing Questions from Lester Brickman,
Professor of Law, Benjamin N. Cardozo School of Law............ 122
Response to Post-Hearing Questions from Michael Carter, Monroe
Rubber & Gasket Company........................................ 203
Response to Post-Hearing Questions from Charles S. Siegel,
Partner, Waters & Kraus LLP.................................... 205
Response to Post-Hearing Questions from James L. Stengel, Esq.,
Orrick, Herrington & Sutcliffe LLP............................. 223
HOW FRAUD AND ABUSE IN THE ASBESTOS COMPENSATION SYSTEM AFFECT VICTIMS,
JOBS, THE ECONOMY, AND THE LEGAL SYSTEM
----------
FRIDAY, SEPTEMBER 9, 2011
House of Representatives,
Subcommittee on the Constitution,
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:06 a.m., in
room 2141, Rayburn House Office Building, the Honorable Trent
Franks (Chairman of the Subcommittee) presiding.
Present: Representatives Franks, Chabot, Jordan, Nadler,
and Scott.
Staff Present: (Majority) Zach Somers, Counsel; Sarah
Vance, Clerk; (Minority) Jason Everett, Counsel; and Veronica
Eligan, Professional Staff Member.
Mr. Franks. The subcommittee will come to order.
Good morning, and welcome to this Constitution Subcommittee
hearing on how fraud and abuse in the asbestos compensation
system affects victims, jobs, the economy and the legal system.
For many Americans, asbestos litigation, like asbestos itself,
may seem like a relic of the past. However, asbestos
litigation, which has long been rife with fraud and abuse,
continues to negatively affect asbestos victims, jobs for
American workers, the economy and the legal system.
It has been about 5 years since Congress last conducted
oversight into issues related to asbestos litigation. And
although congressional hearings a half decade ago shed light on
the asbestos bar's disturbing practices, I am concerned that
the asbestos compensation system remains deeply troubled today.
When Congress last examined asbestos litigation, it was on
the heels of the uncovering of a massive asbestos litigation
fraud that ranks among the worst frauds perpetrated in American
history. This massive fraud turned the worst occupational
health disaster in U.S. history into one of the country's
greatest scandals. Yet, despite this fraud and abuse being
detected over half a decade ago, legal observers report that
the worst abuses of the tort system continue to be central
features of asbestos litigation today.
For instance, according to reports, a new generation of
diagnosing doctors has emerged to provide questionable
evaluations of asbestos claims, filling the void left as
physicians subject to congressional scrutiny in the mid-2000's
shuttered their asbestos practices. Moreover, plaintiffs' firms
continue to abuse State laws in order to bring cases in
favorable forums; they are also aggressively pursuing novel
legal theories well outside the bounds of traditional tort law
in order to bring indications against solvent firms only
tenuously connected to their clients; and the longstanding
abuse of enhanced or creative product identification in which
plaintiffs are coached to identify the products of solvent
companies as those they remember being exposed to, continues
unabated.
To make matters worse, it appears that fraudulent and
abusive claims are now being filed against the ever-growing
body of asbestos bankruptcy trusts. Indications are that
claimants are attempting to double dip into both the tort and
asbestos trust systems, often asserting contradictory claims
against bankruptcy trusts and solvent companies. Falsified
claims and duplicative recoveries unfairly reduce the amount of
compensation available to deserving, present and future
claimants.
Fraudulent and abusive claims also affect solvent
companies, most of which only have a limited link to asbestos
liability. Over 8,500 U.S. companies and over 90 percent of
American industries have been sued for asbestos-related claims.
Companies, many of whom never manufactured asbestos nor
marketed it, are being sued by people who are not sick and may
never be sick, and who, therefore, may not need compensation.
America's employers cannot create jobs and energize the
economy when they are drained of tens of millions of dollars by
abusive asbestos litigation in which their products were not
even involved. Funds that could otherwise be used for research
and development, facility construction and job creation are
being lost to legal fees and the cost of fraudulent and abusive
asbestos claims continues to drive otherwise viable employers
into bankruptcy.
I hope that by once again shining light on the fraud and
abuse in the asbestos compensation system, Congress can
discourage bad actors and direct judicial attention to
troublesome practices. Fraudulent and abusive practices hurt
deserving, present and future asbestos victims, American
employees and employers and the U.S. legal system.
With that, I would yield to the distinguished Ranking
Member for his opening remarks.
Mr. Nadler. Thank you, Mr. Chairman.
Mr. Chairman, we are still living with the legacy of the
careless use of asbestos and the widespread harm it caused to
the health of still untold numbers of people. I hope that no
one at today's hearing will seek to deny, as the industry did
for too long, that asbestos causes serious, debilitating and
fatal illnesses, that there is a widespread health crisis
resulting from exposure to asbestos, or that those in industry
whose actions caused people to become exposed and sick should
bear the responsibility for their actions.
Just as with the tobacco industry, the days when the facts
could credibly be denied are long over. What remains for us is
to ensure that those who have genuinely been harmed are
compensated and receive the care they need and deserve, and
that the cost of that harm are borne by those responsible and
not by the U.S. taxpayer or by the victims. That we are, today
in 2011, still trying to resolve this problem is unfortunate,
to put it mildly.
The 1994 amendments to the Bankruptcy Code provided
companies facing massive future claims with the ability to get
out from under the significant liability overhang and continue
in business. Following the court in the Manville bankruptcy
case, the Code allows companies to resolve all asbestos claims,
present and future, and shifts liability to a trust. Although
there is a representative of the future claimants in the case,
the actual future claimants are never heard. Their claims will
have been sent to the trust long before they ever know that
they are sick. The trusts are often underfunded and inadequate
to the full cost of the harm.
While there has been much discussion and no shortage of
suggestions as to how to improve the resolution of these
claims, some of which merit careful consideration, I cannot
help but express a certain amount of irritation at some
companies who spent decades concealing the dangers, failing to
protect their workers and fighting in the courts and Congress
to avoid responsibility, who now complain about the trust
system. It is a neat trick to be able to dispose of claims that
have yet to arise involving people who never have the chance to
be heard. I do not think anyone in the industry would suggest
for a moment that we return to pre-Manville law and place these
liabilities back on the companies' books where future claims
could be paid out of future earnings.
Asbestos cases will continue to plague us for many years
because people, unfortunately, continue to get sick and to
suffer. As we consider the economic impact of these
liabilities, I hope no one would suggest that the cost to the
companies for these injuries should be shifted to the victims
in order to improve the company's financial outlook. Whatever
the cost to the industry, the cost to the victims has been far
more significant.
There are some very serious issues, indeed, surrounding the
administration of these trusts, the treatment of claims and the
extent to which justice is being done. I hope we can remember
to keep our eyes on the ball. Our chief mission must be to
ensure that victims, those genuinely harmed by the asbestos
industry, are aided, and that the wrongdoers, not the taxpayers
foot the bill.
Thank you, Mr. Chairman. I yield back.
Mr. Franks. I thank the Ranking Member.
I understand that the Ranking Member of the full Committee,
Mr. Conyers, is not available for an opening statement. So then
without objection, other Members' opening statements will be
made part of the record.
I want to welcome you all here to the Committee this
morning. Our first witness, Lester Brickman, is a professor of
law and former acting dean at the Benjamin N. Cardozo School of
Law where he teaches contracts and legal ethics. He has written
extensively and his writings have been widely cited in
treatises, casebooks, scholarly journals and judicial opinions.
Professor Brickman has been acknowledged by four Federal courts
as an expert on the history of asbestos litigation, asbestos
bankruptcy trusts, and the effect of tort reform on future
asbestos claim generation.
Our second witness, Michael Carter, is president of Monroe
Rubber & Gasket, a small, family-owned business that is
headquartered in Monroe, Louisiana. He served in the United
States Navy from 1978 to 1981 and joined Monroe after leaving
the Navy. Mr. Carter has been with Monroe for over 30 years.
Our third witness, Charles Siegel, is the head of appellate
practices at Waters & Kraus LLP. Mr. Siegel has argued appeals
in eight Federal appellate courts, six State supreme courts and
numerous intermediate appellate courts around the country. He
has served as an adjunct professor at the University of Houston
Law Center and as a guest lecturer at several other law
schools. Mr. Siegel has been recognized on the Texas super
lawyers list every year since its inception in 2003.
Our fourth and final witness, James Stengel, is currently
senior partner for litigation at Orrick, Herrington & Sutcliffe
LLP and as such, manages the firm's global litigation practice.
He primarily represents clients in large complex and multiparty
class action litigation. He has handled significant actions
involving the chemical, tobacco and medical device industries.
Mr. Stengel has written and lectured on complex litigation and
mass tort subjects at a variety of law schools and seminars.
Each of the witnesses' written statements will be entered
into the record in its entirety, so I would ask that each
witness summarize his testimony in 5 minutes or less. To help
you stay within that time, there is a timing light only your
table. When the light switches from green to yellow, you will
have 1 minute to conclude your testimony. When the light turn
reds, it signals that the witness' 5 minutes have expired.
Before I recognize the witnesses, it is the tradition of
this subcommittee that they be sworn in. So if you please
stand.
[Witnesses sworn.]
Mr. Nadler. Mr. Chairman, could I be recognized for a
moment, please?
Mr. Franks. Yes.
Mr. Nadler. I just want to take this opportunity to extend
a special welcome to Professor Brickman who is a distinguished
professor at Cardozo Law School, which is in my district, where
he is very highly regarded.
Mr. Franks. Well, I am not going to ask him if he is a
Republican here this morning.
I would now recognize our first witness, Professor
Brickman, for 5 minutes.
TESTIMONY OF LESTER BRICKMAN, PROFESSOR OF LAW, BENJAMIN N.
CARDOZO SCHOOL OF LAW
Mr. Brickman. Mr. Chairman, Members of the Subcommittee,
thank you for the opportunity to appear before you.
As you have stated, the tragedy of asbestos continues to--
--
Mr. Franks. Sir, could we get your microphone a little
closer here. Is it turned on?
Mr. Brickman. Asbestos has long been regarded as the
``magic mineral'' because of its unique qualities, but it has
also caused the deaths of at least 200,000 occupationally
exposed workers. Another 50,000 deaths from mesothelioma, a
rare cancer caused by asbestos, are projected over the next 40
years.
The tragedy of asbestos, however, is compounded by its
litigation history. This carcinogenic mineral has given rise to
a malignant enterprise. In nine published articles on asbestos
litigation, I have documented the existence of a massively
fraudulent enterprise involving the creation of literally
hundreds of thousands of bogus medical reports. These reports
have been used to extract billions of dollars in settlements
from defendants in the tort system, and more recently, from
personal injury trusts which have been created to pay the
claims against the companies that were bankrupted by asbestos
litigation.
There has been a complete and total failure by State and
Federal law enforcement agencies to prosecute the doctors who
have received tens of millions of dollars for preparing these
reports, let alone the lawyers who hired them.
The U.S. Attorney's Office for the Southern District of New
York began an investigation in the summer of 2004. Though grand
juries were convened and voluminous credible evidence of fraud
has been amassed, this investigation, once again, languishes
for want of someone to head it. The effect of this systemic
neglect is to grant lawyers and the medical doctors they hire a
special dispensation to commit fraud.
This failure, I suggest, should not be allowed to stand
unchallenged. I, therefore, urge this subcommittee to request
the Government Accounting Office to investigate this law
enforcement failure and then exercise oversight over a
Department of Justice that effectively condones manufacturing
medical diagnoses for money on a massive scale.
The effects of this corrupt scheme have been devastating.
Over 90 companies have gone bankrupt. Ten years ago, the Rand
Institute for Civil Justice estimated that over 600,000 jobs
were lost due to asbestos litigation. Undoubtedly, that total
would be much higher today.
Though nonmalignant claim filings have declined
precipitously starting in 2004, primarily because of State tort
reforms, there has been a recent upsurge of such filings with
the trusts. The impetus for this is the recent emergence of
trusts with substantial assets that have significantly
increased the value of nonmalignant claims in the trust system
to as much as $40,000. Given the huge volume of filings,
attorney fees can easily amount to over $100 million on an
annual basis for filing these nonmalignant claims with the
trusts.
Over $6.5 billion have been or will be set aside by the
pending and confirmed trusts for unimpaired and moderately
impaired nonmalignant asbestosis and pleural claims. Expedited
filing procedures now allow lawyers to upload thousands of
claims with a key stroke. This combination of efficiency, a
nearly $7 billion fund waiting to be tapped and the magnitude
of the attorney fees potentially available presents a
compelling incentive for asbestos lawyers to resume the mass
recruitment of claimants.
Trust claiming procedures are hidden from public view by
the stealth sheathing that lawyers have constructed around the
trusts. This system affords law enforcement and the public no
transparency regarding the validity of claims filed with the
trusts. Already, as the Chairman noted, there is evidence that
a new generation of litigation doctors is emerging to replace
the doctors that have been unmasked. Unless law enforcement
withdraws the free pass it has extended to lawyers, and to the
litigation doctors that they hire to manufacture diagnoses for
money, in the words of U.S. district court judge Janis Jack,
and to maladminister pulmonary function tests, mass recruitment
of those occupationally exposed to asbestos can be expected to
resume, and that will be a sad day indeed, sir.
Thank you for this opportunity.
Mr. Franks. Well, thank you, Professor Brickman.
[The prepared statement of Mr. Brickman follows:]
__________
Mr. Franks. I now recognize Mr. Carter for 5 minutes.
TESTIMONY OF MICHAEL CARTER,
MONROE RUBBER & GASKET COMPANY
Mr. Carter. Thank you.
Mr. Franks. Mr. Carter, can you pull your microphone to
you. We should probably turn those on in the Committee ahead of
time because it happens constantly.
Mr. Carter. Chairman Franks, Ranking Member Nadler and
Members of the Subcommittee, thank you for inviting me to
testify today. My name is Mike Carter and I am with Monroe
Rubber & Gasket.
Mr. Nadler. I can't hear you.
Mr. Carter. My name is Mike Carter and I am with Monroe
Rubber & Gasket Company in Monroe, Louisiana, the president of
the company.
Just to give you a little history, we were incorporated in
1975, and over the course of about 35 years, we have managed to
employ about 25 people. We started with a handful, we worked
hard, and we have got to where we are today by hard work.
Unfortunately, I need probably four to six more people, maybe
more than that, but I am not in a position to hire these people
because I am inundated with lawsuits.
Unfortunately, I was pulled into this back starting around
March of 2002 and I received my first lawsuit which would
become 104 separate lawsuits with about 2,200 plaintiffs, and
my office has got a designated corner now where it is just
stacked full with asbestos lawsuits.
Let me say, first of all, I am very sympathetic to those
individuals that are sick. I think it was a horrible crime that
was committed by the people that kept this quiet for so long.
But I say let's go after the people that we need to go after
and not just anybody in the tier.
But with these lawsuits, I have spent many, many hours and
a lot of time on a grassroots effort in Louisiana, been here in
Washington several times pleading my case, but to this point,
to no avail.
I have got a situation here where it just seems that we
have got a very broken system. I can't hire people that I need
to hire in an economy that unemployment is high, and I can't
grow a business not knowing what tomorrow might bring for me. I
feel like that at this point we are in a broken system caught
up in a feeding frenzy of trial attorneys out for their own
agenda, and it threatens to destroy small business across our
country. And I just feel like it is time for our elected
officials to step up to the plate and help small businesses
like myself.
I have been able to get out of some of these cases summary
judgment, but unfortunately, my attorney is telling me now that
some of these cases are probably going to trial. I am a small
company in a small town that worked hard to get where I am at
today in a country that we can call our America based on our
dreams and hard work to become and be what we want to be here.
Unfortunately, that can be taken away from me with nothing to
do with it.
Again, I need more people. I can't hire them. I won't hire
them. I am not going to grow this company, this second company
any farther, based on the fact that I don't know what tomorrow
is going to bring.
I can't tell you the number of times I have been here and
pleaded my case in front of so many people. But I just can't
tell you enough how much I need help. And I am just a small
voice for a lot of people across America, small business. We
are the backbone of America. But it is just an unfair thing
that is happening right now, and I surely need somebody to step
up and help us.
I don't know how long it is going to be that I can come
here and do this. This could be my last trip here. If I go to
trial and I am hit with a verdict and I have to pay a certain
percentage of that, I am probably going to be locking my doors
and sending my people home, and I just hope there is somebody
that is going to be able to tell me how to tell my people why
they are going home.
It is unfortunate that we live in this kind of economy that
this kind of stuff can happen to people like myself.
But in wrapping this up, I only hope that--I am just a
small fish in a lot of big water here, but I hope that somebody
will hear me and they will come to bat and help me with this. I
just don't know how much time I have left. Like I say, if I get
hit with any kind of verdict, I can't afford $3 million or $4
million. I will close my doors and go home. But I would love to
hire some more people, but at this point that is just not able
to happen.
Thank you for your time.
Mr. Franks. Thank you, Mr. Carter.
[The prepared statement of Mr. Carter follows:]
Prepared Statement of Michael Carter
__________
Mr. Franks. As some of you saw, we have been called to the
floor for votes, and that has actually happened before, and we
are going to go ahead and let Mr. Siegel testify. And then, Mr.
Stengel, we will have to come back after the votes and
reconvene. I apologize to you, sir.
Mr. Siegel, you are recognized for 5 minutes.
TESTIMONY OF CHARLES S. SIEGEL, PARTNER,
WATERS & KRAUS LLP
Mr. Siegel. Thank you. I would like to thank the
subcommittee for the opportunity to testify on the State of
asbestos litigation today. My name is Charles Siegel and I am a
partner in the firm of Waters & Kraus, and for 25 years, I have
had the privilege of representing people seriously injured by
exposure to asbestos or their survivors.
I am proud to represent people such as Mark Smith from San
Antonio who was a constituent of Chairman Smith of this
Committee. He was exposed to asbestos through his father who
worked as a contractor installing siding and roofing materials
that contained asbestos.
Mr. Smith's father would come home with asbestos on his
clothes that young Mark would breathe. Mark Smith died at the
age of 50, leaving a wife and a 12-year-old son.
But the Smith case is only one example out of hundreds of
thousands. Asbestos is widely agreed to be the greatest public
health disaster of the 20th century, and it continues unabated
in this century. Even today, seven or eight persons die of
mesothelioma alone every day in this country, and thousands
more get sick with lung cancer and asbestosis. Asbestosis is a
chronic progressive inflammation of the lungs. Mesothelioma is
a rare cancer of the lining of the lungs known only to be
caused by asbestos.
We are here today because these deaths have a cause.
Litigation was necessary because there was fault. Juries and
judges hearing these cases in State courts around the country
for the last 40 years have consistently heard evidence of
corporate concealment of the dangers of asbestos exposure.
A corporate official for Bendix Company, for example, wrote
to Johns Manville in 1966 saying, ``If you have enjoyed the
good life while working with asbestos, why not die from it?''
Another example is provided by the conduct of Union Carbide
Corporation, which actually mined and marketed raw asbestos. It
touted its own asbestos as being safe somehow, while
questioning the safety of other forms of the mineral.
This corporate conduct and the vast legacy of death and
disease that resulted have led to litigation. The overwhelming
majority of this litigation has occurred in State courts and
continues to occur there. State law provides that a claimant
may recover from each party found by the jury to have been
responsible for the exposure and to have behaved negligently or
to have supplied an unreasonably dangerous product. In nearly
all the jurisdictions with any significant number of cases,
there is no joint and several liability, so the jury simply
assigns a percentage of responsibility to each company it finds
to be liable.
When an asbestos defendant files for bankruptcy protection,
there is a popular perception that company offices are closed
and employees lose their jobs and the factories are padlocked.
This is emphatically not true in the asbestos context. Section
524(g) of the bankruptcy code exists precisely so that
companies facing substantial asbestos claims can compensate
victims while continuing normal operations. Almost every
company to have sought bankruptcy protection under this
provision due to asbestos liabilities has been able to continue
its economic health while also compensating victims of asbestos
disease.
In recent years, defendants have argued that lawsuits
constitute double-dipping since claimants may potentially
recover both from defendants in the State court system and from
bankruptcy trusts. The claim is false and reflects a basic
fundamental misunderstanding of the way the bankruptcy system
and State court lawsuits work.
First, trust payments are minimal. There a scheduled value
of a particular disease claim, but then there is also a payment
percentage for all claims. So, for example, while a certain
trust may officially value a mesothelioma claim at perhaps
$100,000, the payment percentage may be 15 percent, resulting
in an actual payment of $15,000. The median payment percentage
across the trust is roughly 25 percent, but some trusts pay as
low as 0.8 percent of the value of a claim.
Second, there is no ``fair share'' for a defendant in
asbestos litigation, there is only what percentage of causal
responsibility is assigned by a jury in a particular case and
each case, of course, turns on its facts. In all 50 States, the
fact that other parties may share responsibility for causing an
injury is not a ground for any one defendant to avoid
liability. Defendants routinely and vigorously assert their
rights to discover materials submitted by plaintiffs to
bankruptcy trusts, and defendants are, of course, free to
conduct and do conduct their own unilateral investigation into
the plaintiff's claims as well.
Even in States with joint and several liability, plaintiffs
do not obtain a double recovery. Under the one satisfaction
rule, a plaintiff is entitled to one recovery, and so after a
verdict is entered, the defendant's share will be offset
against all settlements, including any settlements with trusts.
State law provides a remedy to these families and asbestos
victims should not have to apologize for seeking compensation
for their injuries.
Thank you.
Mr. Franks. Thank you, Mr. Siegel.
[The prepared statement of Mr. Siegel follows:]
__________
Mr. Franks. Mr. Stengel, if it is all right, we are going
to go ahead and try to get your testimony in and then return
for questions at the end of the vote series, which I will try
to get a timing on that as soon as we finish here.
Could we get you to turn your microphone on. You are
recognized for 5 minutes.
TESTIMONY OF JAMES L. STENGEL, ESQ.,
ORRICK, HERRINGTON & SUTCLIFFE LLP
Mr. Stengel. Chairman Franks, Ranking Member Nadler, my
name is Jim Stengel. I appreciate the opportunity to come here
and talk to the subcommittee about these issues, particularly
the question posed by the Committee, which is the impact of
fraud and abuse in the compensation system for asbestos on
victims and defendants.
Thank you for the recital of my background. There is one
additional fact which may be relevant for this subcommittee. My
first experience in asbestos litigation was spending 10 years
as outside litigation counsel for the Manville trust, so I am
reasonably familiar with what trusts do and how they operate.
Since then, I have represented a number of defendants in the
civil litigation system and distressed defendants in the
asbestos litigation system, so I am familiar with both sides of
the street, so-to-speak, in this context.
What I would like to address here this morning is the
somewhat narrower but very important issue of how the operation
of the trusts impacts the tort litigation system. Now, this is
of critical importance, because the independent research group
RAND has determined that the trusts have north of $30 billion
available for the compensation of asbestos victims going
forward. The most recent statistics we have on annual
compensation was that the asbestos trusts disbursed some $3.3
billion in 2008, so we are talking about very substantial
amounts of compensation from the trusts.
Now, to allay a misperception perhaps, I don't think anyone
here today takes issue with the fact that the asbestos health
crisis is real, there are injured people, and those people
deserve to be compensated. What I think you are hearing from
most of us is we want a level playing field.
We want a system that awards compensation based on actual
fact and actual evidence. And what has happened in the trust
environment is, particularly with the most recent wave of
bankruptcy trust filings starting in 2000, a wave of
bankruptcies which was, in part, occasioned by the fraud that
Professor Brickman talked about, the unimpaired claims
overwhelming corporate defendants in a way that gave them no
option but to declare bankruptcy, we saw the disappearance of
first- and second-line defendants in the asbestos scheme and a
vast number of new defendants were introduced to litigation,
and I think there was an expectation that those companies would
necessarily bear the burden of the missing bankrupt entities,
at least during the reorganization process.
That is not what happened. The process has been sticky. It
has ratcheted in one direction and the new defendants, like
Monroe Rubber, are continuing to bear the burden of the
departed bankrupt entities. And now that these very substantial
amounts of assets are available from the trusts to provide
compensation, there is no reason why the trust system and the
tort system on the other side should be split the way they are
now. The trusts operate in a way that is siloed, separate and
opaque from the litigation system.
What we want is transparency in terms of a limited but
critically important piece of information or evidence. That is,
what assertions of exposure are being made by claimants who are
also plaintiffs in the tort system about who is responsible for
their injury. It is unfair and distorts the system for a
claimant to do, as they can, under the current rules, litigate
their case against 20 or 30 solvent defendants in the tort
system, resolve that case, and we resolve mesothelioma cases in
12 to 18 months, and before even the very rare statute of
limitations in a trust of 3 years comes into play, have the
opportunity then to go back and reassert those claims.
The one thing that the 50 years of experience that we have
had in asbestos litigation has proven to us is, one, the system
is very, very sensitive to economic incentives, and by putting
billions of dollars available in a secondary compensation
system that doesn't have to be reflected in the tort system, we
can expect that bad things will happen.
The second as we have seen is the system is remarkably bad
at self-policing. It simply will not fix these problems.
All we ask at this point, frankly, is transparency, and we
believe full disclosure and airing of what is happening on the
trust side of the ledger as well as the tort side of the ledger
will improve the system for claimants, certainly and admittedly
for solvent defendants, and for all others.
My written testimony is more extensive and provides some
concrete examples of misconduct we have discovered, concrete
situations where plaintiffs have taken different positions in
court and with the trusts. We have knowledge as to what I
suspect is the mere tip of the iceberg. But even those stark
examples I think provide this Committee with the evidence they
need to look at this issue and look at it seriously.
Thank you very much.
Mr. Franks. Thank you, Mr. Stengel.
[The prepared statement of Mr. Stengel follows:]
__________
Mr. Franks. With that, our meeting will be adjourned until
the sound of the gavel, which will be as close to 11:30 as
possible. Immediately following votes, approximately 11:30.
Thank you.
[Recess.]
Mr. Franks. The meeting will resume. I apologize to you
profoundly for it taking longer on the floor than we thought it
would. It seems like that is a proverb, but I do apologize to
all of you.
Mr. Nadler, the Ranking Member, would have been back, but,
unfortunately, because of the delay on the floor, he was called
to a special briefing on terrorist threats. His district
encompasses the World Trade Center, and he is there on behalf
of his constituents. So we will have to plod on. Again, I
appreciate you all being here. I also am grateful for Mr. Scott
being here to allow us to continue.
If I may, I will recognize myself for 5 minutes to begin
the questioning here. Mr. Carter, I would like, if I could, to
start with you, sir.
From what I can tell, your business had essentially very
little involvement with asbestos in general, maybe you can
enlighten me, and I certainly hope that you survive the
lawsuits that you are facing at this time.
Can you give us just sort of a recap of your story related
to what the involvement of your company was or was not with
asbestos and what the lawsuits mean to you and how they affect
your company going forward? You did quite well in your
testimony, but I am wondering if you would just recap that for
us.
Mr. Carter. Yes, thank you. Well, in the 104 separate
lawsuits with 2,200 plaintiffs, first and foremost, I have
never manufactured any asbestos. All I ever did was buy a
product from a manufacturer and resell it to the end user who
asked for it by name. I didn't make anybody sick. I mean, in
all of the 36 years I have been in business, not one person
that has ever been affiliated with my company has ever
contracted any type of asbestos-related disease. Nobody.
I am just one of the next people in the next tier of
companies that the trial attorneys are going after, and it is
going to break us. We are a small business. We are trying to--
we are supposed to be the backbone of America, and,
unfortunately, we have been caught up in this vacuum and I
don't see an end to it. We have never manufactured it. We have
never made anybody sick. I do have the utmost compassion for
those individuals that are sick, but let's go after the ones
that did all of this.
So, to make a long story short, we never manufactured
asbestos. We just bought a product, like I say, sold it to the
end user who asked for it by name, and for some reason or
another, we are brought into this as somebody that is
responsible. And if this trend continues, you will see a lot of
small business across America do the same thing we are going to
do if we get brought into any type of trial, and that is to
close our doors.
Mr. Franks. Well, thank you, sir, very much.
Professor Brickman, if I could ask you briefly, in your
written testimony you stated that law enforcement officials
have essentially given a free pass to lawyers and doctors
involved in asbestos litigation fraud. How you do you think the
failure to hold those individuals accountable affects the
asbestos compensation system as well as those who might
rightfully have a claim that might be affected by overlooking
the fraud that seems evident, at least according to your
testimony?
Mr. Brickman. Mr. Franks, I think that the enormous amounts
of money that have been paid out to bogus claims, easily $25,
$30 billion and perhaps more, has deprived claimants who have
actually been injured by exposure to asbestos from the level of
compensation that could have been accorded them had these
billions and billions of dollars not been paid out in verdicts
and settlements to persons, to hundreds of thousands of persons
who could not legitimately show any injury from exposure to
asbestos.
Going forward, what I foresee is the distinct possibility
that litigation screenings that generated this entire
fraudulent scheme will resume because of the enormous amounts
of money. As I have put forth in my oral and written
statements, there is upwards of $6.5 billion set aside for
nonmalignant claims, and the only way that lawyers will be able
to tap into this is to resume screenings, and I fear that is
what will happen. And the fact that law enforcement is just
sitting back and doing nothing despite the enormous volume of
credible evidence of fraud is only encouraging this
potentiality.
Mr. Franks. Thank you, sir.
Mr. Stengel, if you had seen Mr. Siegel's written
testimony, he seems to indicate a picture in which only truly
sick and deserving plaintiffs sue responsible companies for
their injuries, and those companies are forced to pay only
their fair share of the damages, and claimants do not file
fraudulent claims or double-dip the asbestos bankruptcy trust.
I just want to give you the opportunity to respond. Do you
think that that fits with your understanding of the facts?
Mr. Stengel. It does not fit with my understanding of the
facts, Chairman Frank. We have uncovered specific instances
where claimants as plaintiffs in the tort system have taken one
position as to when they were exposed and what products they
were can exposed to, in some cases, insisting the only asbestos
they have been exposed to was that of a client of mine, where
at the same time, through discovery, we have learned they made
16 or more bankruptcy trust claim filings. I can't tell you as
I sit here today which of those is not correct, but clearly
somebody is not being told the truth somewhere in the system.
The history that Professor Brickman has recited I think
makes it very clear that there is always room for misconduct in
this system given the amount of money at stake and the flux of
the system, and at present, bad things will happen, and we have
evidence of that.
Mr. Franks. Well, thank you, sir.
I now yield to Mr. Scott for 5 minutes.
Mr. Scott. Thank you, Mr. Chairman.
Mr. Chairman, I think we need to put a little bit of this
in perspective to begin with, because we are here because of
decisions made that exposed plaintiffs to asbestos, and in the
Johns-Manville case, Fisher versus Johns-Manville Corporation,
the judge found that the jury was justified in concluding that
both defendants, fully appreciating the nature, extent and
gravity of the risk, nevertheless made a conscious and cold-
blooded business decision in utter and flagrant disregard of
the rights of others to take no protective or remedial action
and pointed out that that is exactly the kind of behavior that
ought to subject people to punitive damages.
Now, Mr. Brickman, you talk about bogus claims. Are you
talking about claims where people have indications of exposure
to asbestos but no symptoms?
Mr. Brickman. Congressman, the bogus claims I am referring
to are the claims generated by litigation screenings, by the
screening companies hired by law firms that brought mobile X-
ray vans and then hired litigation doctors who read the x-rays
as positive for exposure to asbestos, although their error
rates when subjected to testing by doctors who had no
participation in the litigation were in the high 90 percent
range. Those are the bogus claims that I am referring to.
Mr. Scott. Well, if you do something about those, what
about the people who have valid claims. Do you have a problem
with the valid claims?
Mr. Brickman. Of course not.
Mr. Scott. Are you counting nonsymptomatic as a valid or a
bogus claim?
Mr. Brickman. Nonsymptomatic, in and of itself, is not
indicative in either way.
Mr. Scott. If you have pleural thickening of the lungs, is
that a valid claim or not?
Mr. Brickman. It depends on the nature of the thickening,
but in many States, it is a valid claim. In some States, it is
not. That is an area of law I am not going to comment on
because of the technicalities.
Mr. Scott. So if lawyers are trying to find people that
have been victims of this conscious and cold-blooded business
decision, is that anything inherently bad about that?
Mr. Brickman. Well, let me just respond by talking about
the cold-blooded business decision. You need to make a
distinction or a distinction should be made between mining
asbestos and companies that used raw asbestos like Johns-
Manville to incorporate into products. The companies that sold
asbestos-containing products did not know, had no reason to
know at the time they were manufacturing these products that
when the production were used in the workplace, they would
result in injury to workers.
That knowledge did not come out until Dr. Selikoff did his
studies in the early mid-1960's. It was then and only then that
knowledge became available to the industry that products
containing asbestos could also injure workers.
Mr. Scott. So the information in the 1930's and 1940's that
subjected people to the kinds of injuries that they are
suffering today, that doesn't count?
Mr. Brickman. That counts with regard to mining companies
and it counts with regard to companies that used raw asbestos
in their plants to manufacture the materials. What it doesn't
count for is the sale of products and the use of these products
in the workplace. That is a separate area in terms of knowledge
of the potential harm. As I said----
Mr. Scott. So should the victim, depending on who the
defendant ought to be, is the defendant not entitled to full
recovery, including punitive damages for being subjected to
this kind of conscious and cold-blooded business decision.
Isn't the plaintiff entitled to recover?
Mr. Brickman. Plaintiffs are entitled total recovery for
injuries sustained----
Mr. Scott. And punitive damages?
Mr. Brickman. Punitive damages are very complex, because if
you have multiple punitive damage awards, arguably that
violates the 14th Amendment to the Constitution with regard to
due process of law. I have written about the subject. I don't
think you can give a simple yes-no answer. It is a complex
issue, and one that I think the courts have basically
mishandled, although by and large today, courts do not permit
punitive damages in many of these cases.
Mr. Scott. Mr. Siegel, did you want to comment?
Mr. Siegel. Thank you, Congressman Scott. Yes. What
Professor Brickman says is exactly wrong, and I think is due to
the fact that perhaps he is an academic and has not spent time
trying these cases.
Juries have consistently found that companies that took the
raw asbestos that was mined and put it in their products and
sold those products in the marketplace, in other words,
companies that didn't mine it and take it out of the ground but
that bought it from the mining companies, put it in their
products, sold those products, juries have consistently found
for 30 or 40 years that those companies were negligent and
grossly negligent.
And I used the example in my statement of Bendix, which was
a company that sold breaks that had asbestos in them. There is
that infamous Bendix document in which the corporate officials
said, ``Well, if you made a nice living working with asbestos,
you might as well die from it.'' Or to take another example,
National Gypsum, whose official in 1958, 1958, said, ``There is
no question that if you work with asbestos and you inhale it,
you are going to get asbestosis.''
Now, did that compel them to stop selling their product?
No. Did that compel them to put a warning on their product? No.
So that is simply a conclusion and a statement that is divorced
entirely from the results of trials. And I would be happy to
supply the subcommittee with a very, very long list of punitive
damages verdicts upheld by appellate courts against companies
that sold asbestos-containing products.
Mr. Scott. Thank you.
Mr. Franks. Thank you, Mr. Scott. You folks have been so
patient and you were so kind to come back, if it is all right
with you, we are going to go ahead and do a second round, give
you a little better opportunity to develop any other thoughts
that you have.
Mr. Stengel, I might begin with you, sir. About 8,500
companies representing about 90 percent of all of the U.S.
industries have been sued in cases related to asbestos. What
percentage of those companies would you estimate were involved
in the actual production of asbestos or the hiding of the
harmful effects of asbestos?
Mr. Stengel. Well, Chairman Franks, the best way to answer
that is probably to go back to where the litigation was when
Manville was still a viable defendant in the early eighties.
There were probably at that time, and Professor Brickman can
correct me, I think a roster of around 20-25 defendants that
were routinely viewed as the first rank, both miners, millers
and producers most importantly of asbestos insulating material,
because those were viewed and that was the subject matter of
the Selikoff study. So you ended up with a fairly small
population.
When Manville went into bankruptcy, that circle expanded
somewhat to get secondary players, but it was still fairly well
constricted to people who had some material role in the
production of either raw asbestos or asbestos-containing
materials or had premises that had asbestos present.
What has happened in the period really from the late 1990's
forward has been this explosion in the number of entities and
individuals named as defendants where you get from secondary to
tertiary to peripheral defendants, and it is really a search
for a solvent bystander, and companies like Monroe Gasket and
other small companies are being brought into this, or even
large companies with very little participation in the asbestos
production process. So you get increasingly tangential
connection with the production of the material.
Now, as to the evidence of a conspiracy among the major
asbestos producers includes Johns-Manville, that was a very
small group of companies and that emerged in the 1930's, 1940's
and 1950's, conduct which no one here is going to defend. But
that is again a smaller concentric circle of involved people.
And if I could, and I don't want to take your time,
Chairman Franks, but to respond in part to Mr. Scott's
question, I don't think anyone here is suggesting that an
individual plaintiff shouldn't be allowed to bring suit against
defendants and seek punitive damages if they can prove their
case, both as to the conduct or responsibility of the
defendants they name, and they can show, and this is where the
transparency with the trust becomes critically important, if
they can show an actual connection between the products,
premises or actions of a given defendant and their illness.
If you look at a roster, and I believe now the number is
north of $10,000, or 10,000 claimants, I think that is what
Towers-Perrin's most recent estimate is, when you get to those
peripheral levels of players, is there really a material
substantive legally sufficient causal link between whatever
those defendants were alleged to do and the illness of those
people?
Again, we are not saying that asbestos plaintiffs shouldn't
have their day in court. We think a day in court is a wonderful
thing, if we have a single day in court where all the evidence
is available and we can allocate fault and have the jury make
the decisions that are appropriate.
Mr. Franks. All right. Professor Brickman, I might ask you
another question. Not to pick on Mr. Siegel, but in his written
testimony, he asserts that the large number of nonmalignant
claims are a thing of the past essentially. And in your
opinion, do nonmalignant claims still exist, either in the
court system or as claimants to the asbestos bankruptcy trust?
That is a sincere question. I assume your asbestos will
probably be yes, but enlighten me if you can.
Mr. Brickman. Yes, sir. There has been a huge increase in
nonmalignant claims put to trusts beginning around 2007, almost
a doubling every year. The trusts don't publish this
information. They don't make it available. The trusts are
opaque. They are the model of non-transparency. They are run by
plaintiffs' lawyers. All decisions of the trusts are made by
people that are appointed by plaintiff lawyers. So this
information is very hard to come by.
But my research shows it has been a huge increase in trust
filings, and that most of these trust filings are re-filings of
claims that were made in States like Ohio, Georgia,
Mississippi, States which have enacted tort reforms, which
basically preclude these screening-generated claims. So what
the lawyers are doing is refiling them with the trusts, and now
the significant difference is they can get serious money from
the trusts, I said up to $40,000 for a nonmalignant claim. And
my concern is that because law enforcement has given a free
pass to lawyers and doctors to perpetrate this fraud, that
lawyers will not be content, given almost $7 billion available
for nonmalignant claims, lawyers will not be content with
simply refiling claims they have already brought in the tort
system, but will again reinstitute screenings because that
money, it is a pot of gold sitting there waiting for them to
harvest it.
Mr. Franks. Thank you, Professor. I will now recognize Mr.
Scott for 5 more minutes.
Mr. Scott. Thank you.
Mr. Siegel, questions of double-dipping have been brought
up. You referred to this in your testimony. Is it possible to
get compensated twice for the same injury?
Mr. Siegel. No.
Mr. Scott. Why not?
Mr. Siegel. Because when a person has a claim against the
various companies that caused his injury, in other words, the
various companies that made the products to which he was
exposed, he will pursue those claims either in the court system
or in the trust system. And the notion that the one is hidden
from the other or that the one should pay and the other
shouldn't pay and therefore the other paying is a double-dip is
just--it is completely wrong.
Mr. Scott. Can the defendant figure out that through
discovery?
Mr. Siegel. Absolutely. And the way we know this again is
through the results of actual trials. In my written statement,
I provided several recent examples of California trials, and I
know Mr. Stengel is familiar with these cases because his
client was in some of them, not in the trials, but was in some
of the cases earlier in which the jury hears all the evidence,
the defendant puts on evidence of other products to which the
plaintiff was exposed, and the jury allocated significant
shares of responsibility, usually much more than was allocated
to the solvent defendants, significant shares of responsibility
to the bankrupt defendants. That way we know that the
defendants in the tort system are not handcuffed, are not being
shielded from the truth, because they have the evidence that is
necessary to convince the jury of alternate exposures.
There is sort of pervading all of this is a very elitist
notion that the jury will never get it right and the jury can't
understand anything between, for the smoke screen that is being
erected in front of it, but we know that that's not true. And
we know that the results of actual trials show they are
perfectly capable of seeing the exposure to bankrupt companies,
perfectly capable of deciding who is liable and who isn't
because we certainly lose our share of trials as well.
Mr. Scott. Now speaking of transparency, when you settle a
case, is there any pressure put upon you to keep the settlement
confidential?
Mr. Siegel. Yes, there is. I guarantee you Mr. Stengel
would not pay us a cent in any case without an ironclad
confidentiality agreement. That is an absolute condition of
defense agreements in the tort system all the time. And what
there--it is sort of a violation of the first rule in law
school in the case of Goose v. Gander. They want complete
confidentiality in the tort system, and they want complete so-
called transparency, i.e., no confidentiality at all otherwise.
Mr. Scott. Now, a lot has been made about the idea, and you
have kind of referred to it, about the connection of present
defendants to the asbestos liability. Some of them are saying
they didn't have anything to do with it. What is your response
to that?
Mr. Siegel. Again, we trust juries in State courts to
decide these things. And for any--just like I think my clients
are always right, it has been my experience that most lawyers
for defendants think their clients are always right and never
committed any negligence whatsoever. And that's why we have
juries. Juries hear the evidence, they decide if a company was
negligent, they decide if a company knew or should have known
the hazards of its products. And what we are facing and what
these defendants frankly are facing are the verdict of juries.
That is how we operate these things in the United States, we
trust them to State court juries.
Mr. Scott. Now victims of this conscious and cold-blooded
business decision activity that creates nonmalignant
situations, what is the--is there any damage--what kind of
damages would occur if someone has nonmalignant----
Mr. Siegel. Right, we have to remember exactly what
nonmalignant means, people who are being castigated for having
the temerity to seek compensation for a non malignant
condition. That includes severe disabling, fatal asbestosis.
That includes pleural thickening. That includes an entire
spectrum of lung function or lack of decrease in pulmonary
function, all of which comes under the heading of
nonmalignancy. As we know, the first massive wave of asbestos
deaths in this country was the massive wave of asbestosis
deaths, and there are continuing cases of asbestosis even
today. And to suggest that $40,000 for asbestosis is some kind
of windfall to these people is frankly offensive. I know it
would be offensive to my clients.
Mr. Franks. Well, I am glad we settled the issue today. And
I think thank you all for being here and without objection, all
Members will have 5 legislative days to submit to the chair
additional written questions for the witnesses which we will
forward and ask the witnesses to respond as promptly as they
can so that the answers may be made a part of the record.
Without objection all Members will have 5 legislative days
with which to submit any additional materials for inclusion in
the record. And with that, I sincerely thank all of the
witnesses again, I thank the Members and observers and this
meeting is now adjourned.
[Whereupon, at 12:16 p.m., the subcommittee was adjourned.]
A P P E N D I X
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Material Submitted for the Hearing Record