[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]



 
       FURTHERING ASBESTOS CLAIM TRANSPARENCY (FACT) ACT OF 2012

=======================================================================

                                HEARING

                               BEFORE THE

                   SUBCOMMITTEE ON COURTS, COMMERCIAL
                         AND ADMINISTRATIVE LAW

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                                   ON

                               H.R. 4369

                               __________

                              MAY 10, 2012

                               __________

                           Serial No. 112-120

                               __________

         Printed for the use of the Committee on the Judiciary


      Available via the World Wide Web: http://judiciary.house.gov



                  U.S. GOVERNMENT PRINTING OFFICE
74-122                    WASHINGTON : 2012
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing Office, 
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, U.S. Government Printing Office. Phone 202ï¿½09512ï¿½091800, or 866ï¿½09512ï¿½091800 (toll-free). E-mail, [email protected].  

                       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             JARED POLIS, Colorado
TREY GOWDY, South Carolina
DENNIS ROSS, Florida
SANDY ADAMS, Florida
BEN QUAYLE, Arizona
MARK AMODEI, Nevada

           Richard Hertling, Staff Director and Chief Counsel
       Perry Apelbaum, Minority Staff Director and Chief Counsel
                                 ------                                

       Subcommittee on Courts, Commercial and Administrative Law

                 HOWARD COBLE, North Carolina, Chairman

               TREY GOWDY, South Carolina, Vice-Chairman

ELTON GALLEGLY, California           STEVE COHEN, Tennessee
TRENT FRANKS, Arizona                HENRY C. ``HANK'' JOHNSON, Jr.,
DENNIS ROSS, Florida                   Georgia
BEN QUAYLE, Arizona                  MELVIN L. WATT, North Carolina
                                     JARED POLIS, Colorado

                      Daniel Flores, Chief Counsel

                      James Park, Minority Counsel


                            C O N T E N T S

                              ----------                              

                              MAY 10, 2012

                                                                   Page

                                THE BILL

H.R. 4369, the ``Furthering Asbestos Claim Transparency (FACT) 
  Act of 2012''..................................................     3

                           OPENING STATEMENTS

The Honorable Howard Coble, a Representative in Congress from the 
  State of North Carolina, and Chairman, Subcommittee on Courts, 
  Commercial and Administrative Law..............................     1
The Honorable Ben Quayle, a Representative in Congress from the 
  State of Arizona, and Member, Subcommittee on Courts, 
  Commercial and Administrative Law..............................     6

                               WITNESSES

Leigh Ann Schell, Esq., Kuchler Polk Schell Weiner & Richeson, 
  LLC, New Orleans, LA
  Oral Testimony.................................................     8
  Prepared Statement.............................................    10
  Response to Questions for the Record...........................    97
S. Todd Brown, Professor, SUNY Buffalo Law School, Buffalo, NY
  Oral Testimony.................................................    24
  Prepared Statement.............................................    26
  Response to Questions for the Record...........................   175
Charles S. Siegel, Partner, Waters & Kraus LLP, Dallas, TX
  Oral Testimony.................................................    51
  Prepared Statement.............................................    53
  Response to Questions for the Record...........................   183
Marc Scarcella, Bates White, LLC, Washington, DC
  Oral Testimony.................................................    65
  Prepared Statement.............................................    67
  Response to Questions for the Record...........................   206

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Prepared Statement of the Honorable Steve Cohen, a Representative 
  in Congress from the State of Tennessee, and Ranking Member, 
  Subcommittee on Courts, Commercial and Administrative Law......    79
Material submitted by the Honorable Ben Quayle, a Representative 
  in Congress from the State of Arizona, and Member, Subcommittee 
  on Courts, Commercial and Administrative Law...................    85

                                APPENDIX
               Material Submitted for the Hearing Record

Prepared Statement of the Honorable John Conyers, Jr., a 
  Representative in Congress from the State of Michigan, and 
  Ranking Member, Committee on the Judiciary.....................    95
Letters from Kevin E. Irwin, Keating Muething & Klekamp PLL, 
  Attorneys at Law...............................................   210
Letter from Douglas A. Campbell, Campbell & Levine, LLC, 
  Attorneys at Law...............................................   220
Letter of Opposition to H.R. 4369, from the Future Claimants' 
  Representatives (FCRs).........................................   224
Letter from Heather B. White, Esq., Chief of Staff & General 
  Counsel, Environmental Working Group (EWG).....................   237
Letter from R. Bruce Josten, Executive Vice President, Government 
  Affairs, Chamber of Commerce, United States of America.........   239

                        OFFICIAL HEARING RECORD
      Material Submitted for the Hearing Record but not Reprinted

GAO Report, GAO-11-189, entitled Report to the Chairman, Committee on 
    the Judiciary, House of Representatives, September 2011, Asbestos 
    Injury Compensation, The Role and Administration of Asbestos 
    Trusts, submitted by the Honorable Ben Quayle, a Representative in 
    Congress from the State of Arizona, and Member, Subcommittee on 
    Courts, Commercial and Administrative Law. This report is available 
    at the Subcommittee and can also be accessed at:

    http://www.gao.gov/new.items/d11819.pdf


       FURTHERING ASBESTOS CLAIM TRANSPARENCY (FACT) ACT OF 2012

                              ----------                              


                         THURSDAY, MAY 10, 2012

              House of Representatives,    
                    Subcommittee on Courts,
                 Commercial and Administrative Law,
                                Committee on the Judiciary,
                                                    Washington, DC.

    The Subcommittee met, pursuant to call, at 9:34 a.m., in 
room 2141, Rayburn House Office Building, the Honorable Howard 
Coble (Chairman of the Subcommittee) presiding.
    Present: Representatives Coble, Quayle, Cohen and Watt.
    Staff Present: (Majority) Daniel Flores, Subcommittee Chief 
Counsel; Travis Norton, Counsel; Johnny Mautz, Counsel; Beth 
Webb, Counsel; Rachel Dresen, Professional Staff Member; Ashley 
Lewis, Clerk; (Minority) James Park, Subcommittee Chief 
Counsel; and Susan Jensen-Lachmann, Counsel.
    Mr. Coble. Good morning, ladies and gentlemen. The 
Subcommittee on Courts, Commercial and Administrative Law will 
come to order.
    Today's hearing is a legislative hearing on H.R. 4369, the 
``Furthering Asbestos Claim Transparency Act,'' popularly known 
as the ``FACT Act of 2012,'' introduced by Representatives 
Quayle, Ross--Quayle from Arizona, Ross from Florida--and 
Matheson from Utah.
    Nearly 15 years ago in Amchem v. Windsor, the Supreme Court 
struck down a massive class action settlement which many 
considered to be the turning point in asbestos litigation. In 
its opinion, the Court described asbestos litigation as an 
elephantine mass that may be best resolved by the Legislature.
    While I think no one in the House or Senate disputed the 
Court's elephantine description, years were spent in this 
Committee and in the Senate trying to craft some replication of 
the Amchem settlement to help resolve claims and prevent a wave 
of bankruptcies due to asbestos litigation.
    As everyone or as most everyone is well aware, efforts in 
the House and Senate were unsuccessful, and for many defendants 
the only recourse had been to seek bankruptcy protection. 
Fortunately, section 524(g) of the Bankruptcy Code had already 
been enacted and has served a vital tool for asbestos victims, 
defendants, and plaintiffs. Needless to say, 524(g) has not 
been without its problems, which resulted in the creation of 
H.R. 4369 and today's hearing.
    Virtually every aspect of the asbestos litigation has been 
tragic. At its inception asbestos was a miracle product used in 
construction and by our military throughout the country, only 
to become a national pariah after thousands of Americans became 
deadly ill or sick due to exposure. The symptoms of asbestos 
exposure are uncanny. There are long latency periods and a 
myriad of symptoms. While liability for asbestos exposure was 
fiercely contested initially, it has become so prevalent that 
many defendants simply settle claims rather than assume the 
risk.
    Most of the original big-name defendants have filed for 
bankruptcy protection, and I am told that the number of new 
claims is holding steady, which means that the growing pool of 
plaintiffs will have to seek compensation from a shrinking pool 
of money unless there are new defendants to pay claims.
    The tragic twist is that asbestos litigation has not 
concluded. It has simply moved from notorious big-name 
defendants to lesser-known entities and asbestos trusts. I look 
forward to today's hearing and learn how H.R. 4369 will help 
protect the pool of funds for asbestos victims and prevent 
fraud against asbestos trusts. Anyone who is missing or 
wrongfully taking money from these trusts is simply 
compensating from victims that should be held accountable.
    Also I am interested in how the bankruptcy trustee and the 
trusts help protect the money for victims. Finally, I am 
concerned and interested to learn more about the ethical 
responsibilities and duties of attorneys who bring or initiate 
cases against asbestos trusts.
    Now that I have concluded my opening statement, I will 
recognize the distinguished gentleman from Utah, Mr.--I stand 
corrected, Arizona. All those Western States look alike. I say 
that with tongue in cheek, of course. The distinguished 
gentleman from Utah, Mr. Quayle, for his opening statement.
    [The bill, H.R. 4369, follows.]

    
    
    
    
    
    
                               __________
    Mr. Quayle. Thank you, Mr. Chairman. And it is part of the 
Four Corners, so we are good to go.
    I want to thank you, Mr. Chairman, and thank you for 
calling this hearing to consider H.R. 4369, the ``Furthering 
Asbestos Claim Transparency Act,`` or ``FACT Act,`` which I 
recently introduced with my Democratic colleague, Jim Matheson 
from Utah, and my colleague on the Subcommittee, Dennis Ross 
from Florida. This bill is about transparency so that funds 
will remain available for those who are truly injured and not 
exhausted by those filing fraudulent claims.
    The problem with fraud in the asbestos compensation system 
has been well documented. In September of last year, my 
Judiciary colleagues on the Constitution Subcommittee held a 
hearing to examine the occurrence of fraud within the asbestos 
compensation system and its effects on businesses and the 
economy. That hearing addressed the problem. This hearing 
explores a much-needed solution.
    In 1994, Congress amended the Bankruptcy Code to allow a 
Chapter 11 debtor to create in its plan of reorganization a 
trust that would handle all future liability claims based on 
the debtor's manufacture, sale, or other involvement with 
asbestos-containing products. These trusts, created under 
section 524(g), came into existence when the debtor exits 
bankruptcy. In exchange for providing recourse to future 
asbestos claimants through the trust, the debtor receives a 
channeling injunction, preventing future claimants from suing 
the reorganized debtor.
    Under current law there is no statutory requirement that 
asbestos bankruptcy trusts provide any disclosure to anyone 
about who is filing claims, who is getting paid, and why. 
Essentially they operate in secret. There is evidence that this 
secrecy allows fraud to occur. Plaintiffs will present one set 
of facts in public complaints filed in the State tort system, 
then give a contradictory set of facts when they make a demand 
from the trust, and there is no communication or transparency 
between the two systems.
    The FACT Act shines light on the asbestos compensation 
system. It requires the trust to publish quarterly reports 
detailing the identity of claimants, the amount they are paid, 
and the basis for the payment. It is important to note that 
this disclosure will provide no more information than is 
currently available in the claimants' pleadings in the State 
tort system from the local courthouse.
    Make no mistake, I believe that victims of asbestos 
exposure are entitled to just compensation. This bill does 
nothing to hinder their receipt of damages. Instead the bill 
attempts to root out fraud through public disclosure of 
important information. The savings to the trusts that result 
from the reduction of fraud, waste, and abuse will ensure that 
the trusts will have adequate capital for future claimants.
    The FACT Act is a light touch. It does not tell claimants 
how and where they must file their claims or foreclose them 
from recovery. Instead, it brings much-needed transparency to a 
compensation system replete with abuse.
    I appreciate the support of Congressman Matheson and 
Congressman Ross on this measure, and I look forward to the 
testimony of the witnesses.
    Thank you, and I yield back.
    Mr. Coble. I thank the distinguished gentleman from 
Arizona.
    Ladies and gentlemen, I am told that a vote is imminent, 
there will probably be a vote on or about 10:25, so we will 
move along, and I hope we--without keeping you all in an undue 
tone, we will try to wrap this up, but if not, we will come 
back after the vote.
    We have a very distinguished panel before us this morning. 
Our first witness today is Leigh Ann Schell, a founding partner 
of the law firm of Kuchler--is that correct? Did I pronounce 
that correctly?
    Ms. Schell. It is actually Kuchler, Mr. Chairman.
    Mr. Coble. I wasn't even close. Kuchler Polk Schell Weiner 
& Richeson in New Orleans. She practices in the areas of toxic 
tort litigation, environmental litigation, product liability, 
and other legal fields relevant to asbestos. Ms. Schell also 
serves as chairwoman of the International Association of 
Defense Counsel's Legislative, Judicial, and Government Affairs 
Committee.
    Ms. Schell received her law degree from Loyola University 
Law School and her undergraduate degree from the University of 
New Orleans. She is also a marathon runner. According to her 
firm's Web site, the legislative process is frequently a 
marathon and not a sprint.
    Good to have you with us, Ms. Schell.
    Ms. Schell. Thank you, Mr. Chairman.
    Mr. Coble. Professor Steven Todd Brown is an associate 
professor of the SUNY Buffalo Law School, where he also serves 
as director of the school's Center for the Study of Business 
Transactions. Professor Brown's research and teaching draws on 
his experience managing a small business and his practice at a 
major D.C. law firm. His recent academic work focuses on the 
constitutional limits and institutional dynamics of aggregate 
litigation, including bankruptcy and procedural devices for 
consolidating mass tort cases.
    Professor Brown received his J.D. From the Columbia School 
of Law and LL.M. From the Beasley School of Law at Temple 
University, and his undergraduate degree also from Loyola 
University in New Orleans.
    Mr. Charles Siegel is a professor and the head of the 
appellate practicing the law firm of Waters & Kraus in Dallas. 
His practice focuses on asbestos and toxic tort litigation, 
among other fields. He is an experienced litigator and 
appellate advocate, having argued cases in most of the courts 
of appeal and before the Supreme Court of Texas. Mr. Siegel is 
furthermore a member of the Texas Lawyers Association and the 
American Bar Association.
    Mr. Siegel received his law and undergraduate degrees from 
the University of Texas at Austin, where he is a sometimes 
guest lecturer.
    Finally, Mr. Marc Scarcella--am I close?
    Mr. Scarcella. Very close. Scarcella.
    Mr. Coble. Thank you, sir.
    Mr. Scarcella is a manager of Bates White economic 
consulting firm here in Washington, D.C. He has more than 10 
years experience as an economic consultant for litigation. He 
specializes in quantitative methods and their applications in 
dispute resolution, settlement negotiations, and litigation 
management and strategy.
    Prior to joining Bates White, Mr. Scarcella was managing 
director at an analysis and research planning corporation where 
he provided economic analysis and consultive services in 524(g) 
Chapter 11 bankruptcy for Fortune 500 companies. Specifically 
he has advised clients on matters of liability estimation and 
cash flow management, as well as on asbestos trust claims, 
processing procedures, policies, reporting, and valuation.
    Mr. Scarcella holds a master's degree in financial 
economics and two bachelor's degrees from the American 
University.
    It is good to have all of you with us this morning. Folks, 
we try to comply with the 5-minute rule. There will be a panel 
on your desk that will show a green light, and when the amber 
light appears, that means that you have 1 minute. And you won't 
be keelhauled if you violate the 5-minute rule, but if you can 
wrap it up on or about 5 minutes, particularly in view of an 
imminent vote, we would be appreciative to you. We try to apply 
the 5-minute rule to ourselves when it comes our time to 
question you as well.
    Ms. Schell, why don't you kick us off.
    Good to have all of you with us.

TESTIMONY OF LEIGH ANN SCHELL, ESQ., KUCHLER POLK SCHELL WEINER 
                & RICHESON, LLC, NEW ORLEANS, LA

    Ms. Schell. Thank you.
    Good morning, Chairman Coble and Members of the 
Subcommittee. Thank you for holding a hearing today on the FACT 
Act, which is good, commonsense, bipartisan legislation that is 
looking for a solution to an asbestos compensation system that 
is broken. And the solution proposed by the FACT Act is for 
transparency and accountability.
    Now, during the course of my practice, I have been involved 
in asbestos litigation for approximately 15 years. This is not 
a solution in search of a problem. Instead, based on my own 
experience and from that that is seen around the country, this 
is a national problem that needs a national solution.
    For example, my firm recently handled the Robeson case, 
which was filed in New Orleans. In Robeson, the plaintiffs had 
filed on behalf of Mr. Robeson 16 trust claims. Now, Mr. 
Robeson's deposition was taken in Texas solely for the purpose 
of exploring the 16 trust claims filings, and throughout the 
course of the deposition, which was submitted as an exhibit for 
my testimony, Mr. Robeson repeatedly affirmed that 
misstatements and misrepresentations had been made in each of 
the 16 claims filings. In fact, it was noted that the claims 
filings were inconsistent even among themselves as to the 
exposure histories that were listed.
    Another example is a case that I am currently involved in 
in which--it is the Oddo case also pending in New Orleans. And 
we filed written discovery to the plaintiff seeking information 
on whether or not any trust claims had been made. The 
interrogatories were answered, stating that, no, no trust 
claims had been made. We filed a subpoena and issued it to the 
Johns Manville trust, but were met with a motion to quash. 
During the course of arguing on the motion to quash, we 
received information, in fact it was received by letter on 
April 5th of this year, from the Johns Manville trust affirming 
that the plaintiff not only had made a trust claim with Johns 
Manville, but he, in fact, had actually been paid.
    Now, these are just two examples from my law firm and my 
practice, and I am from a small firm in New Orleans with only 
about 24 lawyers in it.
    In the written information that I have submitted to the 
Subcommittee, I have cited a number of other examples from 
States around the country, including Ohio, Oklahoma, New York, 
Virginia, and Maryland, and in all of those instances, courts 
have noted areas of inconsistent statements made in trust claim 
forms and inconsistent information given to the trust claims 
system and in the tort system. In fact, as the Subcommittee is 
likely aware, in the Kananian case, Judge Hanna stated that it 
was the worst case of fraud that he had ever seen, and that, in 
fact, what was before him was lies upon lies upon lies.
    In the Virginia case that is cited in the paper, Judge 
Horne said that in his 22 years on the bench, he had never seen 
such abuses in the discovery process. He went on in that case 
to dismiss the plaintiff's claim with prejudice, and commented 
that it was a fraud upon the court.
    Through the examples cited from the States around the 
country, it is apparent that this is a large problem. In fact, 
looking to the compensation systems that the government has set 
up, those being for BP, 9/11, Katrina, with both BP and Katrina 
being in my own backyard, misstatements and specious claims 
have been discovered time and time again. I think that we would 
be naive not to recognize that in a trust compensation system 
funded with over $36 billion, that there would not be instances 
of misstatements and specious claims that are filed in that 
system.
    So what we are asking for today is the transparency and 
accountability that is established in all those other kinds of 
compensation systems, and we can do that through the FACT Act, 
which calls for transparency in the asbestos trust compensation 
system.
    I see that my time is up, and I thank you for the time 
today and the opportunity to speak before the Subcommittee 
about this problem.
    [The prepared statement of Ms. Schell follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

----------
The exhibits submitted with this statement are not printed in this 
hearing record but are on file with the Subcommittee.

                               __________

    Mr. Coble. Thank you, Ms. Schell. You even beat the--you 
concluded before the red light illuminated, so you get a gold 
star for that.
    We have an obvious New Orleans climate on the panel today. 
Professor Brown, you are now recognized for 5 minutes.

            TESTIMONY OF S. TODD BROWN, PROFESSOR, 
              SUNY BUFFALO LAW SCHOOL, BUFFALO, NY

    Mr. Brown. Thank you, Chairman Coble and Members of the 
Committee. I really appreciate the opportunity to come and 
speak in support of the FACT Act today.
    I testify as an academic who studies mass torts and 
bankruptcy. I also speak from my own experience as a practicing 
bankruptcy lawyer. And in this experience the idea, the very 
idea that ensuring bankruptcy transparency would be in any way 
controversial is surprising. That is the default in bankruptcy, 
particularly with respect to the debtors' dealings with their 
creditors and the way that they settle claims. This makes 
sense. Most bankruptcies involve a limited fund where the value 
of claims asserted exceeds the assets available. Claimants are 
in competition for these limited assets, and experience shows 
that without transparency, repeat players and those they favor 
will enjoy undue recoveries at the expense of the claim pool.
    There is nothing special here about asbestos trusts. They 
manage a limited fund created at the discretion of Congress to 
fulfill a policy established by Congress, the equitable 
compensation for comparable claims over time. Moreover, 
nothing, nothing in the FACT Act requires more information than 
thousands and thousands of creditors file in bankruptcy cases 
across the country every day.
    Second, our experience shows that we cannot just defer to 
fiduciary duty standing alone to advance public policy. Some 
may take their roles more seriously than others, but those who 
sit idly by and collect paychecks face little risk for doing 
so. Moreover, in this context future claims representatives and 
trustees are never wholly independent. They owe their existing 
and future appointments to the goodwill of their nominal 
adversaries, leading attorneys advancing current claims. This 
dependency has a clear punch-pulling effect. This is why we do 
not allow potential adversaries to appoint a guardian ad litem. 
It is why creditors' committee and trustee appointments are 
today left to the United States Trustee. Yet here the one group 
that is not by definition able to monitor the representative in 
the case has that representative chosen by its adversaries and 
rubber-stamped by bankruptcy courts.
    Even those fiduciaries who are vigilant have the deck 
stacked against them. The TDP design is dominated during the 
course of the bankruptcy by the asbestos claimants committee. 
Any significant modification of TDP terms requires approval of 
some of these same lawyers who now serve on the trust advisory 
committee. In most trusts any audit plan can only be put into 
effect with the consent of this same trust advisory committee.
    The effects of this approach are readily apparent. First, 
the trust representations to the GAO about the results of their 
internal audits tell us far more than meets the eye. Every 
global compensation scheme that has been created by Congress, 
every global asbestos compensation scheme of the last three 
decades has been plagued by what most of us would characterize 
as fraudulent claims, yet the trusts self-reported, among other 
things, that they have discovered no fraud, none. We can 
conclude one of two things from this. Either asbestos trusts 
are somehow magically different from every other grid and 
matrix compensation scheme in history, or the audits are not 
what they appear to be.
    There is reason to believe that it is the latter. First, 
there are clear examples of claim filings that most of us would 
characterize as fraudulent, even if they might not qualify as 
fraudulent legally, as a legal term. Take the Kananian case. 
The lawyer responsible for that case acknowledged, and I quote, 
we overstate Mr. Kananian's exposure by indicating he was 
exposed as some type of shipyard worker, and then in 
parentheses in that same email to his partner, he was there one 
day to pick up his ship. Is this the kind of claim we want to 
have paid by trusts with limited funds at the expense of true 
victims who come later in time?
    Or take the Garner case I referred to in my written 
statement. Four trusts accepted this claim and paid over 
$100,000 in spite of the fact that the sole medical evidence 
was a photo of an X-ray taken more than three decades earlier, 
and a doctor who said, well, maybe, possibly it was 
mesothelioma. Is this the kind of claim we want paid out of 
limited funds?
    The faults of this system were laid bare in Silica MDL. 
Many of the claims that Judge Jack called manufactured in that 
case used the asbestos-screening approach and many of the same 
screening companies and lawyers. The Manville Trust tried to do 
something in the late 1990's about these type of claims and 
lost that battle, and yet suddenly trusts one by one adopted 
narrow policies to exclude these doctors and screening 
companies only after Judge Jack's opinion in Silica MDL.
    Why then? If they did not know that such rampant claim 
manufacturing was taking place before that, why did they not 
know? If they did, how did Judge Jack's opinion change the 
rationale for ignoring it? It is because, I submit, the truth 
was laid bare publicly, and that is the great fear with the 
FACT Act. It tells us what those with a vested interest in 
secrecy have to lose with transparency.
    Thank you for your time.
    Mr. Coble. Thank you, Mr. Brown, Professor Brown.
    [The prepared statement of Mr. Brown follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

                               __________
    Mr. Coble. Mr. Siegel.
    Mr. Siegel. Thank you, Chairman----
    Mr. Coble. Strike that, Mr. Siegel. We have been joined by 
the distinguished gentleman from North Carolina Mr. Watt.
    Good to have you with us, Mel.
    Mr. Watt. Thank you.
    Mr. Coble. Mr. Siegel, you are recognized for 5 minutes.

           TESTIMONY OF CHARLES S. SIEGEL, PARTNER, 
                 WATERS & KRAUS LLP, DALLAS, TX

    Mr. Siegel. Thank you, Chairman Coble, and I want to thank 
the Subcommittee for the opportunity to testify today.
    I am a partner in Waters & Kraus. For 25 years I have 
represented families who have been tragically affected by 
asbestos disease, and I am proud to do that.
    The way I see this is as simply a continuation of what I 
have seen for 25 years. The asbestos industry for decades waged 
a war first to keep the hazards of asbestos secret, and then to 
immunize themselves from liability in any way possible, and 
this is just the latest effort in that campaign.
    The real problem we have here is that 10,000 people 
continue to die every year in the United States from asbestos 
disease, and I suggest respectfully that if we are going to 
hold congressional hearings, that perhaps that is what we ought 
to be looking at.
    We have to remember that when we talk about asbestos 
plaintiffs in the abstract, we are actually talking about real 
people, and I just want to use one example of clients my firm 
represents from just outside your district, Chairman, they live 
in Lincolnton, the Mattox family. Evelyn Mattox is the widow of 
William Mattox, who was exposed to asbestos while serving his 
country in the Navy and later as an electrician at Duke Power. 
He died at age 59 of mesothelioma, and I guess Ms. Mattox had 
the temerity to file a claim for that for compensation.
    Why do we have asbestos claims? We have them because there 
was fault. State judges and juries have consistently heard 
evidence of how corporations hid the dangers of asbestos and 
knowingly exposed their workers and their families to a 
substance that could kill them. A corporate official for 
Bendix, for example, said, if you have enjoyed a good career 
working with asbestos, why not die from it? There has got to be 
some cause for death, why not die from it?
    Now, you know, I think that Ms. Mattox, a widow at 59, 
would find the talk of transparency ironic. She could have 
used, he could have used, Mr. Mattox could have used some 
transparency about the hazards of asbestos while he was being 
exposed to it. There wasn't any of that. But, you know, this 
corporate conduct and the vast legacy of death that ensued has 
resulted in decades of litigation. It should be emphasized that 
most of that litigation occurs and has always occurred in State 
court, and it is dwindling.
    In 1994, Congress amended the Bankruptcy Code, as we know, 
to create section 524(g) to address asbestos-related 
bankruptcies. This resolution, 4369, would place new burdens on 
the trusts that have been created pursuant to that statute, but 
would only serve solvent defendants' interest in denying and 
delaying fair compensation to victims.
    First of all, there has been a suggestion that asbestos 
victims are double-dipping. I think Ms. Mattox would find that 
offensive. She is not double-dipping. She is seeking 
compensation from every company who manufactured an asbestos 
product to which her husband was exposed.
    The double-dipping charge, I think, reflects a basic 
fundamental misunderstanding of the way the bankruptcy system 
operates, the way State court lawsuits operate. Claimants do 
not recover the full value of their claims from bankruptcy 
trusts. Most of these trusts pay pennies on the dollar for 
their scheduled claim. They may list the value of a 
mesothelioma claim at $100,000, but the typical actual payment 
may be $15- or $20,000. Many trusts pay less than 1 cent on the 
dollar for the scheduled claim. Every claimant, in order to 
receive even the most small claim from the smallest trust, must 
establish entitlement to payment from that trust according to 
that trust's procedures.
    This bill is designed simply to slow down the payment of 
claims and deny compensation entirely in some instances. 
Mesothelioma victims, as I am sure the Members of the 
Subcommittee know, only have a few months to live. Time is the 
one thing they don't have. Defendants argue that, you know, 
they are being unfairly disadvantaged because they can't get 
individual information from the trusts, but State court 
discovery rules always allow the discovery of relevant 
information. We are in the process of looking at the facts of 
each of the claims that Ms. Schell has talked about in her 
written statement, and we will be pleased to submit the details 
of those to the Subcommittee. I think the Members of the 
Subcommittee will see that the story is a little bit different.
    The last thing I would like to talk about is this 
contention about transparency and how no one could be opposed 
to that. It is important to realize that every single defendant 
in asbestos litigation, including Ms. Schell's clients, 
absolutely insist on complete confidentiality when they address 
and settle claims in the tort system. Ms. Schell would be 
horrified if her clients--and she would never let her clients 
pay us a dime without an absolute ironclad confidentiality 
guarantee. That is an absolute condition of the way they 
participate in the tort system, but they are asking the 
opposite of the trusts.
    Thank you.
    Mr. Coble. Thank you, Mr. Siegel.
    [The prepared statement of Mr. Siegel follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    


                               __________
    Mr. Coble. Mr. Scarcella.

        TESTIMONY OF MARC SCARCELLA, BATES WHITE, LLC, 
                         WASHINGTON, DC

    Mr. Scarcella. Thank you, Chairman Coble and Members of the 
Subcommittee. My name is Marc Scarcella, and I appreciate the 
opportunity to provide testimony in support of this commonsense 
bipartisan legislation.
    As an economist who has been studying trends in asbestos 
claims filings and compensation for over 10 years, I believe 
that transparency between the asbestos civil tort and 
bankruptcy trust systems is critical for the proper allocation 
of indemnification to asbestos claimants and necessary for 
ensuring the accountability in claiming behavior as a deterrent 
to potential specious or fraudulent claiming practices.
    During the past decade I have had the opportunity to work 
with both defendants who are actively litigating cases in the 
asbestos civil tort, as well as legal representatives for 
asbestos claimants and trustee boards to some of the largest 
asbestos bankruptcy trusts. It is from that balanced experience 
of seeing the world from both the tort and trust systems, 
working for both defendants and claimants, that I have gained a 
great deal of knowledge about how these two compensation 
systems interact or, in many instances, fail to interact.
    After reviewing provisions outlined in the bill, I believe 
that it will serve as an effective and necessary step toward 
bridging the transparency gap that currently exists between 
asbestos bankruptcy trusts and the civil tort system, and will 
do so in an efficient and cost-effective manner. Moreover, the 
reporting requirements of the bill will serve as a deterrent to 
potential fraudulent claiming practices across bankruptcy 
trusts.
    The key takeaway points from my testimony are quite simple. 
First, the FACT Act will advance transparency within the 
asbestos bankruptcy trust system. The FACT Act will mandate 
that each trust provide quarterly disclosures, showing who has 
filed a claim against the trust seeking payment and what the 
exposures are that they are alleging in seeking that payment.
    This information is akin to what is already publicly 
available in the civil tort system. When an asbestos lawsuit is 
filed in the tort system, a public complaint discloses the 
identity of the plaintiffs and all the defendants named in the 
lawsuit from which the plaintiffs are seeking compensation. In 
addition, these complaints typically provide general 
allegations of exposure, and in some cases they will include a 
very detailed account of the victim's work and exposure 
history. In addition, publicly available case dockets will 
typically provide status information on each defendant named in 
the lawsuit.
    In sum, the FACT Act is simply looking to disclose the same 
level of information on trust filings as is already available 
on public tort claims.
    The second takeaway point, the FACT Act will act as a 
deterrent to potential fraudulent claiming across trusts. 
Currently billions of dollars in claim payments are distributed 
by asbestos bankruptcy trusts each year with virtually no 
external oversight or public accountability. Individual trusts 
operate in vacuums. This is how the procedures are written. So 
not only are the claimant demands made across trusts not 
publicly available to solvent defendants in the civil tort 
system, but they are also not available within the trust 
system. In most cases the only individuals who know the full 
breadth of claims made in corresponding alleged exposures are 
the plaintiff's counsel.
    To the extent that this lack of transparency and 
accountability may incentivize specious and inconsistent 
claiming across the tort and trust systems, it may result in 
trust funds being depleted by erroneous payments, which in turn 
takes funds away from those asbestos victims who are most 
deserving in the future.
    In sum, the FACT Act will add a level of accountability 
that will act as a deterrent to inconsistent, specious, and 
potentially fraudulent claiming activity in the future.
    The third takeaway. Quarterly reporting requirements of the 
FACT Act will not result in overly burdensome efforts or costs 
to the trusts. Asbestos bankruptcy trusts receive and collect 
claim-level data electronically. They store and process this 
data electronically, and track the claim status and payments 
electronically at the claim level. As a result, extracting 
quarterly summary tables at the claim level is an efficient 
process and an exercise requiring basic database programming 
skill.
    In sum, as someone who has worked for and with processing 
facilities on issues of data management and reporting, I can 
say with confidence that the trust and facilities are well 
equipped to produce these quarterly reports at minimal cost.
    My final takeaway point has to deal with the burden on 
third-party disclosures that the FACT Act points to. Third-
party disclosure requirements of the FACT Act will not result 
in overly burdensome efforts or cost to the trust. The bill 
requires that trusts provide filing and payment information 
upon request of a third party under appropriate protective 
orders. This is already being done today by a lot of trusts. 
Some trusts respond to third-party requests by searching their 
claims database for particular individuals and providing 
information as to whether or not that individual has filed a 
claim with the trust. They will do this for costs ranging from 
zero dollars to maybe $100. Once that search has been 
completed, it is minimal additional effort to produce 
additional information about that claim.
    In closing, the FACT Act is seeking a reasonable level of 
bankruptcy trust claim transparency akin to what is already 
being provided in the tort system, and it is doing so in a 
cost-effective and efficient manner, and that is why I support 
the bill.
    Thank you.
    [The prepared statement of Mr. Scarcella follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
                               __________

    Mr. Coble. Thank you, Mr. Scarcella, and thank each of you 
for your very timely presentation of your evidence. I 
appreciate that.
    We have been joined as well by the distinguished gentleman 
from Tennessee, the Ranking Member of the Subcommittee, Mr. 
Cohen, whom I will now recognize for his opening statement.
    Mr. Cohen. Thank you, Mr. Chairman. I won't take the time 
to give my opening statement. I would like to ask that it be 
entered in the record.
    I would like to say this: I have done a little study on 
this, not enough, and I really regret having missed your 
statements. I had some other issues I had to deal with this 
morning.
    This issue is personal to me in that one of my absolute 
best friends in the world was a great, great, great singer/
songwriter by the name of Warren Zevon. Warren Zevon succumbed 
to mesothelioma in September of 2003. He didn't know the 
genesis of the disease, but he was diagnosed with such, and 
because of that, I am real concerned about these illnesses.
    He did not seek a lawyer, didn't want damages. I had a few 
parasites; I am an attorney, but I had a few people call me and 
talk to me, quote/unquote friends of mine, friends because they 
wanted to get to Warren to take his case, and Warren was good 
and didn't do it.
    But I am concerned about victims, and I am prejudged to 
look at it from that perspective. From what I look at on first 
blush, this is a solution looking for a problem, and the 
expense to the trust of having to go through all of this 
material is going to be to the detriment of the beneficiaries 
of the trust, and it is the beneficiaries of the trust to whom 
I think I owe a--my perspective and my judgment.
    With that, I ask that my statement be entered in the record 
and I yield back the balance of my time.
    Mr. Coble. I thank the gentleman from Tennessee, and, 
without objection, the Ranking Member's complete statement will 
be inserted and made a part of the record.
    [The prepared statement of Mr. Cohen follows:]

 Prepared Statement of the Honorable Steve Cohen, a Representative in 
Congress from the State of Tennessee, and Ranking Member, Subcommittee 
              on Courts, Commercial and Administrative Law

    On its face, H.R. 4369, the ``Furthering Asbestos Claim 
Transparency Act of 2012,'' or ``FACT Act,'' seems like a reasonable 
measure. After all, who could possibly be against greater 
``transparency?''
    Yet the more that I learn about this bill and about the broader 
issue of what the appropriate level of compensation for victims of 
asbestos exposure should be, the more I am beginning to think that this 
bill may be a solution in search of a problem.
    H.R. 4369 would impose a number of new reporting and other 
information-sharing requirements on trusts that have been established 
under section 524(g) of the Bankruptcy Code. These trusts are designed 
to compensate current and future plaintiffs in civil actions against 
those asbestos manufacturers and other related defendants that have 
filed for bankruptcy.
    The bill would require 524(g) trusts to file quarterly reports with 
the Bankruptcy Court and the United States Trustee describing each 
demand for payment from a claimant, including the claimant's name and 
exposure history, and the basis for any payment made. The Court must 
make this report part of its public docket.
    The bill also would require trusts to provide information regarding 
payments and demands for payments to any party in an asbestos-exposure 
related civil action upon that party's written request.
    Under section 524(g), asbestos defendants can re-organize under 
bankruptcy protection and shift their liability for asbestos exposure 
to these trusts in exchange for agreeing to fund the trusts.
    In turn, these trusts pay claimants who seek compensation for harm 
caused by the bankrupt defendant's actions. Importantly, the trusts owe 
a fiduciary duty to all beneficiaries to ensure that only proper claims 
are paid in light of the universe of current and anticipated future 
claimants.
    While not perfect, the trusts have worked reasonably well.
    Yet H.R. 4369's proponents assert that its additional reporting and 
information-sharing requirements for 524(g) trusts are needed to 
prevent fraud by asbestos victims and to eliminate the risk that such 
victims will be over-compensated.
    In assessing this assertion, the most objective source that I could 
find was a study of 524(g) trusts conducted by the Government 
Accountability Office at Chairman Lamar Smith's request.
    The GAO was not able to find any instances of overt fraud. 
Moreover, GAO found that trusts take appropriate steps to ensure that 
fraudulent claims are not paid.
    But even accepting that fraud by asbestos victims is a real problem 
with respect to asbestos trusts, I fear that H.R. 4369's additional 
requirements on trusts will raise their administrative costs 
significantly. Money used to pay these costs ultimately means less 
money to compensate asbestos victims.
    In light of this risk, I would like to know from H.R. 4369's 
proponents why defendants who are concerned about potential fraud by 
asbestos victims could not simply seek trust payment information using 
procedures allowed under existing discovery rules.
    Defendants can already obtain the information they want, without 
undermining compensation for legitimate claims.
    Finally, the reporting requirement in H.R. 4369 raises privacy 
concerns.
    While I recognize that the bill specifically prohibits trusts from 
making public any medical records or full Social Security numbers, the 
bill still would require trusts to make public a claimant's name and 
exposure history.
    Once out in public, such information can be used for any purpose. 
Potential employers, insurance companies, lenders, and even those who 
may seek to harm an asbestos victim in some way can have access to this 
information without the victim's permission or knowledge.
    I hope the witnesses can shed more light on the merits of H.R. 
4369, and I look forward to a fruitful discussion.
                               __________

    Mr. Coble. Folks, we try to comply with the 5-minute rule 
here as well, so if you all can keep your answers in a terse 
manner, I would appreciate that.
    Professor Brown, some opponents of this legislation claim 
that Congress lacks the authority to enact this legislation 
because these trusts are governed by State law. What say you to 
that?
    Mr. Brown. Thank you for the question, Chairman Coble. 
These trusts a.
    Re created solely because of an act of Congress. They carry 
out a function that has been dictated by this same act of 
Congress. They are no more a creature of State law just because 
they incorporate there, because they are formed there, than any 
other organization that is performing a function that has been 
dictated by an act of Congress.
    And, in fact, the Bankruptcy Code already acknowledges that 
entities that are created through the bankruptcy process are 
still subject to Bankruptcy Court orders; they are still 
subject to what is expected of them under the Bankruptcy Code. 
This is not surprising. Moreover, as I mentioned in my written 
statement, this is firmly within the bankruptcy power, which 
even under the narrowest definition relates to regulation of 
the relations between the debtor and its creditors.
    This act, the amendments in 1994, section 524(g) regulate 
those relations going forward, and all that we can really 
expect here, all that we ask, all that I would ask for here is 
that we make sure that parties, whether they are private or 
public, if they are performing a function under the Bankruptcy 
Code, that they do it in a transparent way.
    Mr. Coble. Thank you, Professor.
    Mr. Siegel, what provision of the FACT Act will impede 
claimants from filing a claim with or receiving compensation 
from a trust?
    Mr. Siegel. Well, the act will not prevent a claimant from 
filing a claim with the trust, but what the act will do 
inevitably is impose onerous administrative burdens on the 
trust, which will slow down the payment of claims and will 
deplete the funds of those claims.
    As I said, the claims are already paying pennies on the 
dollar, and to impose upon them the costs that are already 
being--the costs of an enterprise or an exercise that is 
already being handled in the State court discovery system is 
sort of just asking Congress to shift the defendants and the 
State court's work on to the trust, and again, as I said, they 
are already strained to the maximum. They don't have any spare 
personnel or dollars to devote to these tasks of essentially 
relieving defendants in the tort system from their discovery 
burdens.
    Mr. Coble. Thank you, Mr. Siegel.
    Mr. Scarcella, very briefly. I want to get to Ms. Schell. 
If you will, go ahead very briefly.
    Mr. Scarcella. I just wanted to add something to that 
question if I may. As somebody who worked at a trust, the 
largest asbestos trust, the Manville Personal Injury Trust, 
back in 2001 as their quantitative data analyst and 
statistician, I can tell you that I understand Mr. Siegel's 
concern, and I think it is a legitimate concern, but I can 
assure everybody that it is not a problem.
    When I worked at Manville, my sole function was to manage 
data for internal analysis and respond to third-party requests 
for external information. My role and job functions relating to 
reporting requirements similar to what is in the FACT Act had 
no bearing on the work that was being done by claim reviewers 
and claim managers whose job is to review, qualify, and get 
claimants paid. It is a split, you know, level of authority and 
split level of responsibility that will not impede how fast an 
individual can get paid when they call a trust fund.
    Mr. Coble. Thank you.
    Let me get one more question in for Ms. Schell. Ms. Schell, 
the September 2011 GAO report notes, and you highlight this in 
your testimony, that 65 percent of trusts have included 
procedures in their trust distribution plans that are intended 
to prevent the disclosure of claims information. Why do you 
think this is the case?
    Put your mic on, if you will.
    Ms. Schell. Thank you for your question, Mr. Chairman.
    I included that information because I think it is 
significant that now postconfirmation the committees that make 
up the rules for the Administration of the trust funds are 
building in confidentiality provisions into those trusts to 
keep information from the public, and it is problematic for a 
number of reasons.
    First, it doesn't make much sense to keep the information 
confidential. It should be information that should be reported. 
And the fact that it is being done postconfirmation raises 
questions in and of itself, and that it is being done by 
committees that are in large part made up by or at least in 
part made up by plaintiffs' firms from around the country.
    The confidentiality provision sometimes--and I gave the 
example of Babcock and Wilcox in my paper--also set out the 
method by which the information can be obtained, and in that 
particular instance it requires a subpoena from a Bankruptcy 
Court. So that trust is moving the question out of the State 
court arena and putting it in front of the Bankruptcy Court in 
which none of the tort players are actually involved. And so it 
sets up an unworkable step.
    And really to go down the path of whether or not defendants 
can get discovery through State court proceedings strays from 
the point of the FACT Act. The point of the FACT Act is to 
require widespread reporting of claims made in all the trusts; 
not just to provide information to one single defendant in one 
single case, but instead to provide information that then can 
be reviewed by those seeking clarity and those----
    Mr. Coble. Ms. Schell, my time has expired, but if you 
could wrap up very quickly.
    Ms. Schell. And by those seeking clarity and those that are 
just simply looking to make this compensation procedure and 
process like all the others with oversight.
    Mr. Coble. Thank you, Ms. Schell. I appreciate that.
    The distinguished Ranking Member from Tennessee is 
recognized for 5 minutes.
    Mr. Cohen. Thank you, Mr. Chairman.
    Mr. Siegel, how do you look upon this law as it affects 
people who have been affected by asbestos claimants? Is this 
adverse to their interests?
    Mr. Siegel. It is entirely adverse to their interests. Even 
though, oddly enough, it is an act that is directed at 
bankruptcy trusts and the claimants of those bankruptcy trusts, 
it serves only the interest of third parties, and that is the 
defendants in the tort system.
    The defendants already get and are able to get all of this 
information through State court discovery. We know that from 
the results of trials, and that is all in my written statement, 
because in trial after trial after trial, juries assign 
liability to bankrupt defendants, so the defendants in the tort 
system get all the information they need.
    This is simply an effort to take that discovery burden away 
from them which they are already satisfying and put it on the 
claimants, and it has to be recalled. As I said, some trusts 
are paying less than 1 cent on the dollar for scheduled values 
of claims, and to add all of a sudden a quarterly reporting 
requirement that requires them to produce and report on every--
but also redact information from every single claim that they 
have received in the last quarter is really undue and onerous.
    The few examples that we have of fraud in the system today 
I think show that the system works. The Kananian case is a 
terrible example. That lawyer was disbarred, and that claim was 
dismissed. And so once in a while we have a situation like 
that, the system deals with it, and the parties go on down the 
road.
    So there is no need for this, number one; and, number two, 
it is terribly against claimants' interest because it will just 
deplete the time and money left that the trusts are already 
straining with.
    Mr. Cohen. I probably in my opening gave too strong a term 
in describing the attorney who sought my intervention to get my 
friend to enlist his counsel, because if it weren't for trial 
lawyers, probably the defendants in these cases, the agents of 
this illness, would not be as careful as they are now for they 
wouldn't have liability.
    People maybe don't understand the effect of tort law and 
how it does police agents that are harmful to human beings. Who 
are some of these folks that are dispensers of the asbestos 
problem?
    Mr. Siegel. Well, they are companies large and small, but I 
think it is well to recognize that, you know, there is a sense 
from the written statements that we are now dealing only with 
so-called peripheral defendants or defendants that don't really 
have to do much with the real problem caused by asbestos, and 
that the people who really caused the problem are all in 
bankruptcy. Nothing could be further from the truth, and I 
think the best example of that is Ms. Schell's client, Union 
Carbide Corporation, which is hardly a mom-and-pop operation. 
Union Carbide mined raw asbestos. They are about as close to 
the original problem as you can get. They mined raw asbestos 
and sold it by telling people that it--well, the stuff that 
comes from our mine is somehow safer; we are the safe asbestos, 
not the dangerous asbestos.
    So to suggest that we are in the era of--we are only suing 
defendants that had nothing to do with the problem is wrong, 
simply flat wrong.
    Mr. Cohen. When was it discovered that there was a 
connection with asbestos and lung disease? Was that something 
in the last 20, 30 years?
    Mr. Siegel. No, no. There are indications in the--I mean, 
it goes back a long time. The Romans noticed that their slaves 
who were delegated to work with asbestos were dying at a much 
earlier age than their other slaves.
    Mr. Cohen. And did the Romans--the Romans didn't hire trial 
lawyers to----
    Mr. Siegel. No, they didn't.
    Mr. Cohen. They wore the toga, so they didn't have to do 
anything.
    Mr. Siegel. That is true. That is true.
    But as far as the medical literature goes, there are 
indications in the late 1890's and certainly in the early 
1900's of lung problems, lung diseases and death caused or 
occurring in people who worked occupationally with asbestos. I 
mean, we have in the 1930's----
    Mr. Cohen. And when were the first lawsuits brought, do you 
know, that were successful?
    Mr. Siegel. The first lawsuits in the modern era were 
brought in the late 1960's, and the first one that really 
became prominently known is a case called Burrell from Texas in 
the early 1970's.
    And the nature of the claimants has changed. It is true 
that back in the 1970's and 1980's, what you were dealing with 
in terms of claimants was insulators and pipefitters, people 
whose day-to-day work exposed them over and over to massive 
quantities of asbestos. What you have now, you tend to have 
people who weren't exposed to overwhelming quantities on a day-
by-day basis, but still sustained very severe, serious 
occupational exposure in a myriad of ways, and that is causing 
them mesothelioma and lung cancer. As I said, they are seeking 
compensation not from every company in the phone book, but 
simply from companies who made products that they worked with.
    Mr. Cohen. Thank you, sir, and I thank the Chairman.
    Mr. Coble. Mr. Cohen, thank you.
    The distinguished gentleman from Arizona Mr. Quayle is 
recognized for 5 minutes.
    Mr. Quayle. Thank you, Mr. Chairman.
    Before I get into my questions, I would like to ask 
unanimous consent to enter into the record a memo by Paul 
Clement regarding the authority to enact this legislation, and 
also a GAO study* about the role and administration of asbestos 
trusts.
---------------------------------------------------------------------------
    *The study, a GAO Report, GAO-11-189, entitled Report to the 
Chairman, Committee on the Judiciary, House of Representatives, 
September 2011, Asbestos Injury Compensation, The Role and 
Administration of Asbestos Trusts, is not reprinted in this record but 
can be accessed at http://www.gao.gov/new.items/d11819.pdf
---------------------------------------------------------------------------
    Mr. Coble. Without objection.
    [The information referred to follows:]

    
    
    
    
    
    
    
    
    
    
                               __________

    Mr. Quayle. Thank you, Mr. Chairman.
    Mr. Scarcella, I kind of want to get back to something that 
you were talking about earlier. And Mr. Siegel was talking 
about the undue burden, financial costs on the trusts from 
having to provide this information, and I was just trying to--
you testified that you already have an electronic claim 
processing that exists, the trusts do, or at least some trusts 
do, and I was just wondering if you would agree that fraudulent 
claims actually impose a greater cost to the trust than the 
cost of the disclosure requirements that are in this bill.
    Mr. Scarcella. Thank you, and that is a very good question, 
and I think that all depends on the level of potential 
fraudulent claiming as to whether or not that financial strain 
outweighs any other related cost in identifying that fraud.
    I really can't speak to the level of potential fraud. I 
think that is what we are here today to try and figure out is 
if there is a cost-effective way to provide that type of 
accountability and public disclosure to help keep in check 
potential fraud and at least identify it.
    What I can tell you with confidence is that the cost 
associated with trusts meeting the requirements of the FACT Act 
are not that great. They are de minimis. In fact, in general, 
asbestos trusts since 2008 probably spend less than 2 percent 
of total dollars on their processing operations relative to 
their claim payments obviously, and that is by design.
    They are designed to be administrative by nature. It is 
supposed to be a process in which people get paid very quickly, 
and they do, the point I really hope everybody understands. 
Because this idea that Mr. Siegel brings up, like I said, it is 
a legitimate concern, and I am here to tell you that it is not 
a problem. Because of the way these trusts function, because 
most of them, if not all of them, maintain this data 
electronically, the ability to extract reports is something 
that could take a matter of minutes to a few hours. We are 
talking about a computer program that is a few lines of code 
that anybody with basic programming skills could write that 
could generate these quarterly reports. And the beauty of it is 
that once you write that code one time, you don't have to 
rewrite it 3 months later when you have to produce the report 
again.
    It is very, very efficient, and because trusts operate with 
distinct responsibilities where they have people reviewing 
claims and processing claims and getting people paid, and they 
have people--like what I used to do and some of the people I 
used to work with when I was a consultant--and other claims 
facilities who can handle the day-to-day operations of managing 
the data and responding to third-party requests.
    So I guess in answer to your question, it is hard for me to 
know what the potential financial strain of fraudulent claiming 
could be. This bill could help tell us that. What I can tell 
you with confidence is that the cost associated with that level 
of transparency and accountability is not great at all.
    Mr. Quayle. Okay. Thank you very much.
    Ms. Schell, I want to ask, why should the trusts have to 
produce this information on written request instead of going 
through the courts? And kind of why isn't the State court 
discovery adequate in this regard?
    Ms. Schell. Well, for a number of reasons. The State 
court's discovery obligation is challenged time and time again 
by the plaintiffs. And oddly enough, one of the points that Mr. 
Siegel makes is that State court discovery is where this should 
lie, but State court discovery and that effort to produce 
actually does fall upon the plaintiffs' attorney and the 
plaintiffs taking some time, but instead what the FACT Act is 
looking for is reporting from the trust. It doesn't impose an 
obligation on the plaintiffs at all.
    And so this isn't an issue that would cause any kind of 
delay. In fact, the only delay I am aware of is the delay 
caused by the plaintiffs in making their trust claims, because 
they are now allowed, in essence, just to defer the claims 
until some future date to collect on them.
    And the discovery system in State courts is a problem. For 
one, the State in which the tort case is pending is usually not 
the State in which the trust is formed, and so issuing a 
subpoena cannot be done by the State court sitting over the 
tort suit. Instead it has to be done through a court in the 
jurisdiction where the trust is, and also, as I mentioned, that 
is often just met with opposition.
    Mr. Quayle. Okay. Thank you.
    And, Mr. Siegel, I have like about 15 seconds, but you said 
that the FACT Act is adverse to the interests of claimants, but 
opening this up to transparency and actually protecting the 
trusts and the trust assets from fraudulent claims, isn't that 
in the best interest for future claimants who may not have yet 
actually experienced the symptoms of some of the things that 
are coming from the asbestos-related injuries?
    Mr. Siegel. Well, I don't think that the point of this bill 
is to protect trusts from fraudulent claims. That is already 
the trustees' job. Their job is to conserve, is to pay----
    Mr. Quayle. Lack of transparency makes it much easier for 
fraudulent claims to go through, which is why this is actually 
the main focus of the bill so the trust assets are actually 
protected.
    Mr. Siegel. These defendants have no interest in saving the 
trust money to pay claimants. They are using this data solely 
for their own purposes in the tort system. Ms. Schell's clients 
are not going to authorize her to spend money to make sure that 
some unrelated trust pays out only to certain claimants and not 
others. That is not in their interest. Their interest is only 
to get this data to use it in their own private State court 
litigation, and we know that because that is--the asserted 
problem is that the plaintiffs are somehow hiding the ball from 
the tort system.
    Mr. Quayle. Well, I am sure that they would disagree with 
your statement on that.
    Mr. Chairman, I yield back.
    Mr. Coble. I thank the gentleman.
    Let me say, Mel, we can either adjourn and come back.
    Mr. Watt. I am not coming back, Mr. Chairman. I would like 
to do my questioning now. You all are welcome to come back.
    Mr. Coble. Well, let me see if they will hold this vote. We 
are well into this vote.
    Mr. Watt. You are not but 5 minutes into the vote.
    Mr. Coble. Why don't you go ahead then, Mel.
    Mr. Watt. Thank you.
    Mr. Chairman, I am here because I got requests from both 
sides of this issue to be here. I have come in with no bias on 
one side or the other. And I have to say I am disappointed by 
the hearing, because instead of witnesses who came to inform us 
about the pros and cons of legislation, we seem to have four 
advocates here. And so I have not gotten much enlightenment as 
to which side of this issue I should be on because the hearing 
is not serving its useful purpose, which is why I have no 
interest in coming back.
    I just came in in the middle of Professors Brown's 
testimony. He is the one I was hoping would be the most 
enlightening since he was coming from an academic perspective, 
but seemed to be the most strident on one side or the other.
    I picked up testimony of Ms. Schell, who says this 
testimony is in support of H.R. 4369 rather than to inform the 
Committee about the pros and cons of the legislation.
    So, you know, it has not been very helpful. To the extent I 
have a bias, I come out of a litigation background and have 
always thought that information related to litigation is 
information that is the parties' litigation. But somebody told 
me that this was distinguishable from that set of facts because 
there were some other considerations.
    I haven't heard them. Maybe Ms. Schell can enlighten me 
about how this is different from any other litigation. I take 
it that parties to other litigation can have resolutions of 
that litigation as private settlements, and they are able to do 
that. I suspect, as Mr. Siegel said in his testimony, that if 
you were representing a defendant in litigation, you would want 
a privacy agreement and not to disclose either that you were at 
fault or that--or the terms of settlement.
    How is this different from that?
    Ms. Schell. Thank you, Congressman Watt. First of all, I am 
not here today on behalf of any client.
    Mr. Watt. Well, I didn't see say you were here on behalf of 
a client, but when I pick up your testimony and it starts 
``testimony in support'' of as opposed to testimony to inform 
this Committee about the pros and cons of legislation, I--I 
mean, we are here to--I didn't come in as an advocate on one 
side or the other, and I don't expect the witnesses to be here 
as advocates on one side or the other of a piece of 
legislation.
    Tell me what the facts are, and, you know, I will make my 
own conclusions about the policy judgment. Don't tell me about 
the cost of something. Tell me about the policy considerations, 
Mr. Scarcella. I mean, you know, this is a policy discussion. I 
suppose you could pay for anything costwise.
    Go ahead. I don't mean to go off on this panel. I just 
don't find it all that informative to have a bunch of advocates 
testifying rather than a bunch of people who are here to try to 
inform us about what the policy considerations are. 
    Ms. Schell. Yes, sir. The situation with 524(g) trust is 
unique to other types of litigation.
    Mr. Watt. Why?
    Ms. Schell. In most other types of litigation in which I am 
involved, it is part of my practice every day, there aren't any 
trusts set up that can pay bankrupt shares.
    Mr. Watt. Okay. But they are parties to the litigation, and 
there are public policy considerations why in a number of cases 
we would disclose to the public dangers, right? And yet privacy 
agreements are entered into in settlement agreements every 
single day in our litigation setting. So how is this different?
    Ms. Schell. Well, the trust submissions are not----
    Mr. Watt. Just because some trust is sitting out there, we 
should have a different set of rules?
    Ms. Schell. Yes, sir, and the reason is because the trust 
submissions are not in the nature of routine settlement 
agreements, but instead contain oftentimes sworn or certified 
statements supporting an exposure history that is sometimes 
inconsistent with that is given----
    Mr. Watt. I don't understand that. My time is over. So if 
all four of you can write me something about how this is 
distinct in some way.
    Mr. Coble. If the gentleman will suspend, we are going to 
keep the record open for 5 days.
    Mr. Watt. Okay. I have asked the question. Maybe I can get 
a response from everybody, but I don't want to come back and 
pursue it.
    Mr. Coble. As I said, the record will remain open for 5 
days. And I will get into that ultimately.
    I am not offended by having advocates as witnesses. As long 
as both sides are represented, that doesn't bother me. I think 
that may even illuminate the procedure.
    But I want to thank all of you for your testimony today. 
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 their answers will be 
made a part of the record.
    Without objection, all Members will have 5 legislative days 
to submit any additional materials for inclusion in the record.
    With that, again, I thank the witnesses and for those in 
the audience. And this hearing is adjourned.
    [Whereupon, at 10:38 a.m., the Subcommittee was adjourned.]

                            A P P E N D I X

                              ----------                              


               Material Submitted for the Hearing Record

Prepared Statement of the Honorable John Conyers, Jr., a Representative 
 in Congress from the State of Michigan, and Ranking Member, Committee 
                            on the Judiciary

    Asbestos is among the most lethal substances that has been widely 
used in the American workplace.
    Most victims of asbestos exposure either receive compensation for 
their injuries by filing claims with asbestos bankruptcy trusts or by 
filing lawsuits in state and federal court against solvent defendants.
    Today's hearing will consider H.R. 4369, the ``Furthering Asbestos 
Claims Transparency Act,'' or the ``FACT Act.''
    This bill essentially seeks to shift a portion of the costs of 
discovery away from solvent defendants in asbestos litigation cases to 
asbestos bankruptcy trusts that were created to compensate victims 
harmed by bankrupt entities.
    It does this by imposing several potentially burdensome reporting 
and other information-sharing requirements. Specifically, the bill 
requires a trust:

      to file a report at the end of every quarter with the 
bankruptcy court and the United States Trustee describing each demand 
that the trust received from a claimant and the basis for any payment 
from the trust to the claimant, including the name and exposure history 
of such claimant; and

      provide any information related to payment from or 
demands for payment from such trust to any party in a lawsuit based on 
asbestos exposure upon written request, in a timely manner.

    Moreover, this bill applies retroactively, meaning that it will 
apply to all existing asbestos trusts.
    This legislation is problematic for several reasons.
    First, the bill, while perhaps well-intentioned, may have an 
adverse impact on the most vulnerable individuals in this system, 
namely, the thousands of Americans who were exposed to asbestos and now 
suffer from serious diseases and must wait for years to have their 
legitimate claims paid.
    The bankruptcy system is one based on equity and, unfortunately, 
asbestos manufacturers do not have the cleanest of hands in this 
matter.
    Since the early 20th Century, asbestos manufacturers have known 
that asbestos could cause serious injury and possible death to their 
employees and their families, as well as unsuspecting consumers.
    Yet, these manufacturers continued to allow these unsuspecting men 
and women to be exposed to asbestos.
    As a direct result of such exposure, victims experience 
mesothelioma, a fatal cancer caused by asbestos.
    They also contract non-malignant asbestosis, a disease that impairs 
the victim's lung function.
    In addition, victims exposed to asbestos experience lung cancer as 
well as stomach cancer.
    Notwithstanding these serious illnesses, asbestos manufacturers 
used every trick in the book to avoid responsibility, including ----

      suppressing the evidence of its mortal dangers, and then,

      fighting the government's efforts to ban its use when the 
deadly effects of asbestos were indisputable.

    In some cases, innocent victims risk not receiving any compensation 
at all because the responsible manufacturers have gone out of business 
or incessantly deny their liability to these victims.
    H.R. 4369 must also be viewed in the context of asbestos-related 
bills from past Congresses in which the asbestos industry tried a 
strategy of avoiding responsibility for the harm it caused by seeking 
legislation that would have denied or limited recoveries to the 
asbestos victims and their families.
    Another concern that I have with H.R. 4369 is that it would 
effectively shift the cost of discovery away from solvent asbestos 
defendants to the bankruptcy trusts, ultimately diminishing the 
available pool of money to compensate the victims of bankrupt asbestos 
defendants.
    As it is, claimants often receive only a small portion of the full 
amount of their claims, even as little as 1 percent.
    A critical goal of our discussion today should be to ensure that 
H.R. 4369 does not lessen the amount of compensation for asbestos 
claimants, who have already been victimized.
    While not perfect, the trust system set up under Bankruptcy Code 
section 524(g) has generally proven to be beneficial to both asbestos 
victims and to corporations facing mass tort liability for causing 
asbestos injuries.
    In exchange for agreeing to fund these trusts, companies are able 
to re-enter the business community on a competitive basis for the 
benefit of their creditors and those who they injured.
    In turn, these trusts owe a fiduciary duty to all beneficiaries to 
ensure that only proper claims are paid and that such payments are 
ratably equitable given the universe of known and anticipated future 
claimants.
    But, H.R. 4369 does nothing to advance the interests of the trust 
beneficiaries.
    If anything this measure could lessen the amount of compensation 
available to pay the claims of these trust beneficiaries because it 
shifts the cost of discovery from solvent defendant companies to the 
very trusts that are charged with maximizing payments to their 
beneficiaries.
    Again, as a matter of equity, the victims of asbestos exposure 
should not now bear the discovery costs of those who caused their 
injuries and death.
    Nevertheless, some of the witnesses today will likely say the 
asbestos claim process is rife with fraud and that asbestos bankruptcy 
trusts need to be more transparent to deter dishonest claims practices.
    This argument is not persuasive. Existing discovery rules already 
require an extensive amount of disclosure with respect to compensation 
received by asbestos claimants.
    And, as the Government Accountability Office reported last fall, 
there is no empirical evidence of endemic fraud in the claims 
processing system.
    Finally, I am concerned about H.R. 4369's potential to expose 
private and confidential information about asbestos victims.
    While the bill requires the exclusion of confidential medical 
records or full Social Security numbers of claimants, it also requires 
trusts to report and make public the names and exposure histories of 
trust claimants.
    Such information, once irretrievably released into the public 
domain, could be used by data collectors and other entities for 
purposes that have nothing to do with compensation for asbestos 
exposure.
    Just think what insurance companies and prospective lenders could 
do with that information.
    These are just a few of the concerns that I have with this 
legislation.
    I thank our witnesses for being here and hope that they can 
adequately address my concerns.


                                

   Response to Questions for the Record from Leigh Ann Schell, Esq., 
      Kuchler Polk Schell Weiner & Richeson, LLC, New Orleans, LA































































































































































                                

       Response to Questions for the Record from S. Todd Brown, 
            Professor, SUNY Buffalo Law School, Buffalo, NY



















                                

     Response to Questions for the Record from Charles S. Siegel, 
                Partner, Waters & Kraus LLP, Dallas, TX



































                             EXHIBIT ``A''







                             EXHIBIT ``B''









                                

       Response to Questions for the Record from Marc Scarcella, 
                    Bates White, LLC, Washington, DC











                                













                               __________
                               
                               
                               
                               
                               
                               
                               
                               
                               
                               


                                











                                





























                                







                                




                                 
