[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
FURTHERING ASBESTOS CLAIM TRANSPARENCY (FACT) ACT OF 2015
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
REGULATORY REFORM,
COMMERCIAL AND ANTITRUST LAW
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
ON
H.R. 526
__________
FEBRUARY 4, 2015
__________
Serial No. 114-7
__________
Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://judiciary.house.gov
______
U.S. GOVERNMENT PUBLISHING OFFICE
93-082 PDF WASHINGTON : 2015
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COMMITTEE ON THE JUDICIARY
BOB GOODLATTE, Virginia, Chairman
F. JAMES SENSENBRENNER, Jr., JOHN CONYERS, Jr., Michigan
Wisconsin JERROLD NADLER, New York
LAMAR S. SMITH, Texas ZOE LOFGREN, California
STEVE CHABOT, Ohio SHEILA JACKSON LEE, Texas
DARRELL E. ISSA, California STEVE COHEN, Tennessee
J. RANDY FORBES, Virginia HENRY C. ``HANK'' JOHNSON, Jr.,
STEVE KING, Iowa Georgia
TRENT FRANKS, Arizona PEDRO R. PIERLUISI, Puerto Rico
LOUIE GOHMERT, Texas JUDY CHU, California
JIM JORDAN, Ohio TED DEUTCH, Florida
TED POE, Texas LUIS V. GUTIERREZ, Illinois
JASON CHAFFETZ, Utah KAREN BASS, California
TOM MARINO, Pennsylvania CEDRIC RICHMOND, Louisiana
TREY GOWDY, South Carolina SUZAN DelBENE, Washington
RAUUL LABRADOR, Idaho HAKEEM JEFFRIES, New York
BLAKE FARENTHOLD, Texas DAVID N. CICILLINE, Rhode Island
DOUG COLLINS, Georgia SCOTT PETERS, California
RON DeSANTIS, Florida
MIMI WALTERS, California
KEN BUCK, Colorado
JOHN RATCLIFFE, Texas
DAVE TROTT, Michigan
MIKE BISHOP, Michigan
Shelley Husband, Chief of Staff & General Counsel
Perry Apelbaum, Minority Staff Director & Chief Counsel
------
Subcommittee on Regulatory Reform, Commercial and Antitrust Law
TOM MARINO, Pennsylvania, Chairman
BLAKE FARENTHOLD, Texas, Vice-Chairman
DARRELL E. ISSA, California HENRY C. ``HANK'' JOHNSON, Jr.,
DOUG COLLINS, Georgia Georgia
MIMI WALTERS, California SUZAN DelBENE, Washington
JOHN RATCLIFFE, Texas HAKEEM JEFFRIES, New York
DAVE TROTT, Michigan DAVID N. CICILLINE, Rhode Island
MIKE BISHOP, Michigan SCOTT PETERS, California
Daniel Flores, Chief Counsel
C O N T E N T S
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FEBRUARY 4, 2015
Page
THE BILL
H.R. 526, the ``Furthering Asbestos Claim Transparency (FACT) Act
of 2015''...................................................... 3
OPENING STATEMENTS
The Honorable Tom Marino, a Representative in Congress from the
State of Pennsylvania, and Chairman, Subcommittee on Regulatory
Reform, Commercial and Antitrust Law........................... 1
The Honorable John Conyers, Jr., a Representative in Congress
from the State of Michigan, Ranking Member, Committee on the
Judiciary...................................................... 6
The Honorable Blake Farenthold, a Representative in Congress from
the State of Texas, and Vice-Chairman, Subcommittee on
Regulatory Reform, Commercial and Antitrust Law................ 7
The Honorable Henry C. ``Hank'' Johnson, Jr., a Representative in
Congress from the State of Georgia, and Ranking Member,
Subcommittee on Regulatory Reform, Commercial and Antitrust Law 8
WITNESSES
Elihu Inselbuch, Member, Caplin & Drysdale, Chartered, New York,
NY
Oral Testimony................................................. 11
Prepared Statement............................................. 13
Nicholas P. Vari, Esq., K&L Gates L.L.P., Pittsburgh, PA
Oral Testimony................................................. 32
Prepared Statement............................................. 34
Marc Scarcella, Principal, Bates White Economic Consulting,
Washington, DC
Oral Testimony................................................. 45
Prepared Statement............................................. 47
Lester Brickman, Benjamin N. Cardozo Distinguished Professor of
Law, Yeshiva University, New York, NY
Oral Testimony................................................. 66
Prepared Statement............................................. 68
APPENDIX
Material Submitted for the Hearing Record
Material submitted by the Honorable Henry C. ``Hank'' Johnson,
Jr., a Representative in Congress from the State of Georgia,
and Ranking Member, Subcommittee on Regulatory Reform,
Commercial and Antitrust Law................................... 128
Material submitted by the Honorable Suzan DelBene, a
Representative in Congress from the State of Washington, and
Member, Subcommittee on Regulatory Reform, Commercial and
Antitrust Law.................................................. 140
Material submitted by the Honorable David N. Cicilline, a
Representative in Congress from the State of Rhode Island, and
Member, Subcommittee on Regulatory Reform, Commercial and
Antitrust Law.................................................. 145
Response to Questions for the Record from Elihu Inselbuch,
Member, Caplin & Drysdale, Chartered, New York, NY............. 164
Response to Questions for the Record from Nicholas Vari, Esq.,
K&L Gates L.L.P., Pittsburgh, PA............................... 192
Response to Questions for the Record from Marc Scarcella,
Principal, Bates White Economic Consulting, Washington, DC..... 195
Response to Questions for the Record from Lester Brickman,
Benjamin N. Cardozo Distinguished Professor of Law, Yeshiva
University, New York, NY....................................... 223
Congressional Budget Office Cost Estimate for H.R. 527, the
``Small Business Regulatory Flexibility Improvements Act of
2015''......................................................... 227
Material submitted by the Honorable Henry C. ``Hank'' Johnson,
Jr., a Representative in Congress from the State of Georgia,
and Ranking Member, Subcommittee on Regulatory Reform,
Commercial and Antitrust Law.............................232
deg.OFFICIAL HEARING RECORD
Material Submitted for the Hearing Record but not Reprinted
GAO Report, GAO-11-819, entitled Report to the Chairman, Committee on
the Judiciary, House of Representatives, September 2011, Asbestos
Injury Compensation, The Role and Administration of Asbestos
Trusts. This report is available at the Subcommittee and can also
be accessed at:
http://www.gao.gov/products/GAO-11-819
FURTHERING ASBESTOS CLAIM TRANSPARENCY (FACT) ACT OF 2015
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WEDNESDAY, FEBRUARY 4, 2015
House of Representatives,
Subcommittee on Regulatory Reform,
Commercial and Antitrust Law
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to call, at 1:04 p.m., in
room 2141, Rayburn Office Building, the Honorable Tom Marino
(Chairman of the Subcommittee) presiding.
Present: Representatives Marino, Goodlatte, Farenthold,
Issa, Walters, Ratcliffe, Trott, Bishop, Johnson, Conyers,
DelBene, Jeffries, Cicilline, and Peters.
Staff present: (Majority) Anthony Grossi, Counsel; Andrea
Lindsey, Clerk; and (Minority) Susan Jensen, Counsel.
Mr. Marino. Good afternoon. The Subcommittee on Regulatory
Reform, Commercial and Antitrust Law will come to order, and
without objection, the Chair is authorized to declare a recess
of the Committee at any time. And just to give you a little
head's up, in about 15 or 20 minutes, that bell is going to
ring, and we will have to go vote, and it should not be that
long. I think we only have a couple of votes, and I apologize
for the inconvenience.
We welcome everyone to today's hearing on the ``Furthering
Asbestos Claim Transparency Act of 2015,'' known as the ``FACT
Act.'' This morning, I am going to recognize myself for an
opening statement, and then I am going to give my good friend,
Mr. Hank Johnson, the opportunity for his opening statement.
This morning, the Subcommittee meets to examine H.R. 526,
the ``Further Asbestos Claim Transparency Act of 2015,'' or the
``FACT Act.'' This legislation is aimed at preventing
fraudulent activity within the asbestos bankruptcy trust
system. Following the first successful tort lawsuit against an
asbestos defendant in the 1970's, asbestos litigation
dramatically increased to the point that the Supreme Court
described the ongoing lawsuit as an, and I quote, ``asbestos
litigation crisis.''
Under the backdrop of increasing asbestos claims and an
expanding defendant population, courts and parties initiated
several attempts to achieve a comprehensive resolution to
asbestos litigation. Notwithstanding these efforts, no
resolution has been reached. Likely due to the absence of a
comprehensive resolution to the onslaught of asbestos
litigation, companies closed their doors with great cost to the
economy and their employees. Estimates of the cost of asbestos
litigation and the ensuing bankruptcies ranged from between
$1.4 and $3 billion, coupled with a loss of approximately
60,000 American jobs.
To allow some companies to emerge from bankruptcy and
continue their business operations, Congress amended the
Bankruptcy Code. The amendment includes a provision, Section
524(g), which forges what is a simple compromise. A company can
receive a permanent injunction against all of its asbestos
liability claims if it funds a trust in an amount sufficient to
pay all present and future asbestos claims. A product of
bankruptcies that use Section 524(g) is a negotiated
resolution. A company can continue generating jobs and income
for the economy with the certainty that it will no longer face
asbestos liability. Asbestos claimants will have confidence in
a dedicated pool of money that is reserved to compensate them
for their injuries.
Over the past several years, however, the Committee has
heard complaints regarding the asbestos bankruptcy trust
system. These complaints have focused on the ability of
plaintiffs' firms to exert considerable control over the
formation and operation of the trust, the dramatic reduction in
transparency from these asbestos trusts, and troubling reports
of fraudulent activity occurring as a result. The fraudulent
activity follows a similar pattern where plaintiffs' firms file
claims against a bankruptcy asbestos trust claiming injury with
one set of facts. The plaintiffs then file claims against
defendants in State court based on different and sometimes
conflicting sets of facts. This conduct is calculated to
exploit the opaque nature of bankruptcy asbestos trust
operations.
Furthermore, fraud of this variety drains the finite funds
set aside in these asbestos bankruptcy trusts so that when
future asbestos victims start to develop symptoms and look to
the trusts for compensation, their recoveries may be diminished
dramatically.
I support the Vice-Chairman of the Subcommittee, Mr.
Farenthold, for introducing the FACT Act, and I am an original
co-sponsor of this important legislation that will increase
transparency in the asbestos bankruptcy trust system, and allow
these trust funds to protect against fraudulent activity.
Critics of this legislation have raised concerns that this bill
imposes an undue burden on the asbestos trust. Critics also
allege that it infringes on asbestos victims' privacy, and is
not necessary because the critics allege fraud does not exist
in the bankruptcy asbestos trust system. These concerns should
be carefully evaluated.
Thankfully, we have an excellent panel of witnesses before
us today who will help us build upon the Committee's extensive
record in support of this measure, and address the concerns
that have been raised by critics of the legislation. I look
forward to their testimony.
[The bill, H.R. 526, follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
Mr. Marino. I now recognize the Ranking Member, Mr.
Johnson, for his opening statement.
Mr. Johnson. Thank you, Mr. Chairman. And, Mr. Chairman, at
this time, I know that the Ranking Member of the full
Committee, Mr. Conyers, has some pressing business. And so I
will yield to him insofar as his opening statement is
concerned, and I would like the opportunity to make my own once
he concludes.
Mr. Conyers. Thank you so much, Ranking Member Johnson. I
appreciate your kindness. We are all under time constraints
here. I mean, the Committee is full of them. But before I make
my remarks about the subject, I just wanted to congratulate our
colleague, Tom Marino, on his new role as Chairman----
Mr. Marino. Thank you, sir.
Mr. Conyers. Congratulations, sir, on the Subcommittee of
Regulatory Reform, Commercial and Antitrust Law. And I look
forward to working with him and hope that he will continue in
the spirit of collegiality that his predecessor, Spencer
Bachus, exemplified during his tenure as Chairman of the
Subcommittee, and I know that he will.
And I also see the widow of our former colleague, Bruce
Vento, Mrs. Sue Vento, here and present, and I wanted to thank
her for coming, acknowledge her presence here in the Judiciary
Committee. Bruce Vento represented the 4th District of
Minnesota for almost 24 years until his death from
mesothelioma, a form of cancer in the lining of the chest
cavity often linked to exposure to asbestos fibers. Many of us
remember Bruce fondly, a tireless champion of the American
worker, the environment, and the homeless. And so, I am very
pleased that Mrs. Vento has chosen to continue his fight, their
fight, against those who do harm.
I also note that she is joined by a number of asbestos
victims, as well as family members who have lost relatives as a
result of their exposure to asbestos. Will all they just stand
up for one moment, please?
[Audience members stand.]
Mr. Conyers. I did know it was that many. Congratulations.
Thank you. And I am sure everyone on this Subcommittee
appreciates your presence here. You may sit down, please. I
understand that among them, there are both Democrats and
Republicans, and you come from across the United States, so
welcome again. And in spite of your suffering and personal
loss, you are here today to help enlighten us about your
concerns regarding this legislation. You are all to be
commended, and we are glad that you are here. I also want to
note the presence of our distinguished witnesses.
I just want to mention before I yield back that H.R. 526,
the ``Further Asbestos Claim Transparency Act,'' commonly
referred to as the ``FACT Act,'' gives asbestos defendants new
weapons with which to harm asbestos victims. It imposes
invasive disclosure requirements that would threaten asbestos
victims' privacy when they seek payment for injuries from an
asbestos bankruptcy trust.
The bill would require disclosure of claimants' sensitive
personal information, including their names and exposure
histories when they seek payment for injuries from these
trusts. This means asbestos victims will be re-victimized by
allowing this highly personal and sensitive health information
to be irretrievably released into the public domain. Just
imagine what insurance companies, prospective employers,
lenders, data collectors, and others could do with this private
information. Worse yet, these asbestos victims would be more
vulnerable to predators.
Although H.R. 526's supporters claim that it is intended to
help victims of asbestos exposure, asbestos victims vigorously
oppose H.R. 526. In fact, I am not aware of a single victim who
supports this bill. And so, it is a proposal that is
fundamentally inequitable and requires these bankruptcy
asbestos trusts to make certain disclosures that imposes no
comparable demands on asbestos victims. Remember, these are the
very companies whose products killed or injured millions of
Americans. In fact, some manufacturers intentionally concealed
information about the known risk of asbestos exposure, and used
every trick in the book to avoid liability. They even fought
the Federal Government's effort to ban use.
And so, as a result, asbestos continued to be widely used
in constructing our homes, offices, public schools, and even
this very building in which we are all gathered today. But now,
the very manufacturers want Congress to help them by passing
H.R. 526, which effectively shifts the cost of discovery away
from these defendants to asbestos bankruptcy trusts. So, while
today's majority witnesses may claim that the asbestos trust
system is rife with fraud, I think we will find out that there
is very little merit to this assertion.
And so, I will in closing note that several organizations--
the Military Order of the Purple Heart, Asbestos Disease
Awareness Organization, AFL-CIO, the Public Citizen
Environmental Working, among others--all oppose the
legislation. And I yield back my time, and thank the Chairman
for his generosity.
Mr. Marino. You are welcome. Thank you, Mr. Conyers. The
Chair now recognizes the Vice-Chairman of the Subcommittee, Mr.
Farenthold.
Mr. Farenthold. Thank you very much, and I will be brief.
This bill is designed to protect future victims of asbestos, or
victims who have not yet discovered their injury. There are
limited resources in these trusts. It is designed to prevent
double dipping. It is designed to prevent fraud as a result of
filing suits in multiple cases.
There is a long history of abuses within the asbestos
litigation system, a lot of which were brought to light in the
district that I represent in Corpus Christie where Judge Jan
Jack discovered massive abuses. We are just trying to get the
facts out. We are not asking anybody who is a victim who gets a
claim from a trust to give any more information than they would
give in pleadings in a typical lawsuit. All we are trying to do
here is set up a system of transparency where we know if you
have been injured and been compensated, it keeps unscrupulous
plaintiffs' attorneys, and, in some cases, unscrupulous alleged
victims from double dipping.
This is just simple get the facts out there so the lawyers
and the courts all know what is going on. It is a simple,
short, 2-page bill, 3 pages if you count the header. And all it
asks for is a disclosure of information that would normally be
available in pleadings. It is a quick, easy step to solve a
problem and preserve limited resources in these trusts for as
yet undiscovered victims. I will yield back.
Mr. Marino. Thank you, Mr. Farenthold. The Chair recognizes
the Ranking Member, Mr. Johnson.
Mr. Johnson. Thank you, Mr. Chairman. Before I begin, I
would like to take a moment to congratulate you on your new
position as Chairman of this very important Subcommittee. I
enjoyed a terrific relationship with your predecessor,
Congressman Bachus, and I look forward to continuing that
relationship with someone that I consider a close colleague and
a personal friend. Although we will not see eye-to-eye on every
issue, I look forward to working closely with you on important
matters this Congress.
Turning to the substance of today's hearing, I have serious
concerns with the so-called FACT Act. It is actually a very
small compact Trojan horse piece of legislation that is quite
dangerous to the ability of claimants to, particularly those in
the future, to get an adequate recovery for the harm that was
done. And I think all of you people here, victims and the
families of victims, have probably been called perpetrators,
malingerers, and fraudulent individuals trying to make a dollar
off of something that you should not even be, you know, trying
to get. But I recognize you as people who have been aggrieved,
and this court system is the place to go to receive the relief
that you are due.
Not only does this bill create a major hurdle for families
already facing the insurmountable fight against asbestos-
related disease, it also violates their privacy by publicizing
sensitive information about claimants. This information is
already discoverable if relevant to a claim or defense at
trial. As written, little would stop this litigation from
allowing third parties to collect and monetize claimants'
medical history, or use this information to discriminate
against victims and their families.
Federal or State rules of civil procedure already allow a
defendant to gain all relevant information about a claimant's
exposure during discovery. Defendants are often wealthy
corporations represented by experienced, powerful litigators
who have the knowledge and resources to handle discovery. They
get paid well to do so. But even if both parties were on equal
footing, how does a defendant's need for materials outside of
discovery justify a major privacy intrusion on a vulnerable
class of persons? This question is especially troubling when we
stop to consider the equities of these actions where defendants
and claimants are rarely on equal footing during discovery, or
any other stage of the litigation.
Rather than providing for broader transparency for both
parties in litigation, the FACT Act creates significant hurdles
for asbestos victims while doing nothing to address the other
party to the litigation. If we remove the rhetoric behind the
FACT Act, all we are left with is legislation that creates an
asbestos death database with the sole purpose of allowing
Honeywell, Koch Industries, and the two largest asbestos
insurers, Berkshire and Mutual, to easily gain or easily access
other asbestos corporations' kill lists so they can determine
if asbestos victims are getting what they view as too much
justice and if there is way they can nickel and dime the
families they have devastated.
That is what this bill is all about. It is a Trojan horse.
It guarantees the asbestos industry and its insurers, it
guarantees that they pay as little to their victims as
possible. That alone is offensive, but the way the bill
achieves this objective is morally reprehensible. Moreover, for
the second straight Congress, the majority has ignored and
disregarded the hardships and testimony of asbestos victims and
families. Not one victim or their family is seated at this
table today to give testimony. At no point were victims or
family members invited to testify about a bill that would
seriously affect their lives. After retracting a promise to
these families last Congress, I am disappointed to report that
the majority has again shut the doors to these families to
testify on the real effects of this bill. But these problems
are only the tip of the iceberg when it comes to my concerns
about the FACT Act.
In closing, although I welcome Chairman Marino and look
forward to working with him on many important issues this
Congress, I must respectfully voice my deep opposition to this
legislation. And with that, I yield back.
Mr. Marino. Thank you, Mr. Johnson. I am going to declare a
recess in a moment, but I would like to bring out a point that
my good friend brought out before, just in his comments. The
procedure has been when the Democrats were in control and we
have four people at the panel, whoever is in control invites
three, and the other side invites one. We have continued with
that under my chairmanship. We invited three. The other side
invited one. The Democrats could have invited any one of you or
anyone else--victim--to come and testify. They chose not to.
They chose to have the attorney that represents the attorneys
in these cases testify, so I want to make that perfectly clear.
You could have been invited by my colleagues on the other side
of the aisle. They chose not to.
I am going to declare a recess at this point, and we will
be back within 20 or 25 minutes. We have two votes, and then we
will introduce our witnesses.
[Recess.]
Mr. Marino. The hearing will now resume. Without objection,
the other Members' of the Committee opening statements will be
made part of the record.
We have a very distinguished panel today, and I will begin
by swearing in our witnesses before introducing them. So, if
you would, please all rise. Raise your right hand.
Do you swear that the testimony you are about to give is
the truth, the whole truth, and nothing but the truth, so help
you, God?
[A chorus of ayes.]
Mr. Marino. Let the record reflect that all the witnesses
responded in the affirmative. Thank you. Please be seated.
I would like to introduce from my left to right, first Mr.
Inselbuch. Is that correct, sir? Okay. Mr. Inselbuch practices
law at Caplin & Drysdale New York offices. He has 30 years of
experience practicing on behalf of asbestos plaintiffs' bar,
and was first retained in that capacity in a landmark asbestos
bankruptcy case of Johns Manville in 1985. He has represented
the asbestos plaintiff's bar in a number of complex
bankruptcies, including those of W.R. Grace, Babcock & Wilcox,
Pittsburgh Coining, and Armstrong World Industries.
Mr. Inselbuch earned his undergraduate degree from
Princeton University, his law degree from Columbia University,
and a masters of law degree from the New York University School
of Law. Welcome, sir.
Mr. Vari is a partner at the Pittsburgh office of the law
firm of K&L Gates, where he specializes also in asbestos
litigation. He has over 25 years of asbestos litigation
experience in both trial and appellate courts in a number of
States, including: California, New York, Illinois,
Pennsylvania, Texas, Massachusetts, Michigan, and Ohio. Mr.
Vari has been recognized repeatedly for the quality of his
work, including being named one of the best lawyers in America
and the Pennsylvania Super Lawyer.
Mr. Vari earned his undergraduate degree in finance from
the University of Akron and his law degree, summa cum laude,
from the University of Akron School of Law, where he was the
managing editor of the Law Review. Welcome, sir.
Mr. Scarcelli--correct pronunciation?
Mr. Scarcella. Close enough.
Mr. Marino. Okay. What is it?
Mr. Scarcella. Scarcella.
Mr. Marino. Scarcella.
Mr. Scarcella. Scarcella, yes.
Mr. Marino. Okay. Mr. Scarcella--I apologize--is an
economist and principal with Bates White Consulting Firm. He
has over 10 years of experience in economic consulting related
to asbestos litigation, and has extensive knowledge of the
Administration and operation of asbestos bankruptcy trusts.
Additionally, Mr. Scarcella regularly provides his expertise to
ongoing asbestos litigation suits, and has served as an expert
witness in over 50 individual asbestos-related cases.
He earned his bachelor's degree in both economics and
public affairs, as well as a master's degree in economics from
American University. Again, welcome, sir.
Mr. Brickman is a former acting dean and professor of law
at Benjamin N. Cardozo School of Law at Yeshiva University. He
is a leading scholar and expert on asbestos litigation.
Professor Brickman has published numerous articles, spoken on
many panels, and testified frequently before governing bodies
and courts on the issues related to asbestos litigation.
Professor Brickman earned his bachelor of science degree in
chemistry from Carnegie Tech, his law degree from the
University of Florida where he was a member of the Law Review
and graduated Order of Coif, and a master's of law degree from
Yale University where he was a Sterling Fellow.
Each of the witnesses' written statements will be entered
into the record in its entirety. I ask that each of you
witnesses summarize your testimony in 5 minutes or less. And to
help you stay within the time, there is a timing light in front
of you. Now, I do not know how good I am going to be about this
because I am color blind, and I cannot see the last two. They
look they are on or off all the time. The light will switch
from green to yellow indicating that you have 1 minute to
conclude your testimony. When the light turns red, it indicates
that the witness' 5 minutes have expired. And what I will do is
if we get to that red light, when someone nudges me, I will
just politely do a little tap and give you a hint to please
wrap up.
Okay. We are going to start with Mr. Inselbuch's testimony.
Sir, please make sure the microphone is on and pulled up to
you. Sir, I think you may have to push that button on that
microphone in front of you. The light should come on.
Mr. Inselbuch. Yes.
Mr. Marino. Okay, good. Now, we can hear you. Thank you.
TESTIMONY OF ELIHU INSELBUCH, MEMBER,
CAPLIN & DRYSDALE, CHARTERED, NEW YORK, NY
Mr. Inselbuch. Thank you, Mr. Chairman. The Committee press
release says, the ``FACT Act reduces fraud in the asbestos
bankruptcy system through increased transparency measures.''
The Committee has been led to believe there is fraud.
Presumably claims are being paid by trusts based on false
information, depleting the pool of funds available for
legitimate claimants.
Nothing could be further from the truth. I know. Unlike
these other witnesses, my work involves regular interaction
with many asbestos trusts. No one, certainly not any of these
witness, has provided a listing of any such fraudulently paid
claims.
Who is telling you this and asking you to help the trusts
help themselves and their victims? Not one trust or trustee,
not one victims group, not one victim. There are real victims
sitting behind me in this room today. Ask them how this bill
would help them. No, this bill comes through the United States
Chamber of Commerce on behalf of the asbestos companies and
their insurers. They presume on your goodwill here and are
selling a false bill of goods.
Increased so-called transparency is apparently only a one-
way imperative for asbestos corporations because nothing in the
act would require asbestos defendants to provide transparency
for all the settlements that they demand be held confidential
and hidden from public view. Presumably, asbestos defendants do
not want asbestos victims to know what they paid to other
victims to resolve their conduct.
And whose private information becomes public? Thousands of
your constituents, many aging veterans, who might prefer the
world not know who they are, where they live, that they are
sick, that they have recently resolved a claim, and are in
possession of funds. And who pays for this transparency? The
victims themselves. As Mr. Campbell's letter attests,
``Compliance with this act will cost the trust millions of
dollars each year on Section A alone, with no possible estimate
for Section B.'' Mr. Scarcella disagrees, but he has never
worked at any of the trusts in question, and his long-ago
experiences at the Manville trust hardly qualifies him to
contradict the people who will actually do the work.
A word about double dipping. Mr. Vari and his defense
colleagues are insulting the intelligence of those members who
have law degrees, and presuming on the ignorance of the tort
law of those who do not. First, it is imperative that the
Committee Members understand this point. Each trust only pays
its respective defendant's share of the harm caused to a
victim, meaning that there is absolutely no opportunity to
double dip because each trust and each settling defendant in
the tort system only pays for their portion of the harm caused.
No one defendant or trust pays for the harm caused by another
trust or defendant.
Also, as the tort law makes clear, an injured person can
sue and collect from each and every person or entity who
culpably caused that injury. Asbestos victims are individuals
exposed during their employment history to dozens of asbestos-
containing products, and recover from each and every entity
responsible. Typically, over 99 percent of the time, all the
claims are settled with tort system defendants and with trusts.
What the victim receives is the total sum of those settlements,
and there is no standard by which to measure how well or how
poorly compensated he or she has been.
Only in the very rare circumstance that a case goes to
verdict has a victim been compensated in full. Mr. Vari knows
about cases like this, at least in New York where his client,
Crane Company, went to verdict and was found not only liable,
but recklessly so. And only after such a verdict has been paid
to a victim, and, of course, the jury finding is always reduced
by any settlement amounts already received by the victim, if a
victim then sought and obtained recovery from a trust, could
there be even a possibility of so-called double dipping. But
this does not ever happen because after satisfaction of the
rare verdict, the defendant steps into the shoes of the victim
and can on its own behalf pursue any unpaid trust claims.
So why are we here? If the act will not force the trust
savings, and if no trust or victims group wants this, who does
and why? I can only surmise that the bill sponsors believe by
trumping long-developed State law and obtaining information on
hundreds of thousands of their victims, asbestos corporations
will be able to pay less for the injuries and deaths they have
caused. You should not help them. Thank you.
[The prepared statement of Mr. Inselbuch follows:]
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__________
Mr. Marino. Thank you, sir.
Mr. Vari?
TESTIMONY OF NICHOLAS P. VARI, ESQ.,
K&L GATES L.L.P., PITTSBURGH, PA
Mr. Vari. Mr. Chairman and Members of the Subcommittee,
thank you very much for affording me the opportunity to appear
before you today on the important issue of the FACT Act
legislation. Just to re-introduce myself, my name is Nick Vari.
I am an attorney with K&L Gates in Pittsburgh, and for nearly
25 years I have represented asbestos defendants across the
United States, and it is those experiences that shape my
comments today. The reason I am here is that the asbestos claim
recovery system is broken. There are billions of dollars that
are being paid every year by entities that collectively do not
have complete information regarding the claims that are being
paid.
There are two competing remuneration systems or
compensation systems that exist for asbestos claimants. One is
a trust system, and that trust system was formed by now
bankrupt entities that have put money into trusts to not only
pay present claimants, but future claimants who do not even yet
know that they have a claim. The other system is the civil
justice, or what we refer to as the tort system, and that is
where the solvent entities are, and the plaintiffs can seek
recovery from the solvent entities.
The mechanisms in each instance are pretty similar. The
claimant comes forward with information regarding exposure to a
product or showing circumstances that a trust or entity is
responsible for the claim. Then they also need to provide
evidence of a compensable injury that is attributable to that
asbestos exposure, and then the claim is reviewed. It can be
contested, and ultimately it is disposed of and often paid.
The big difference between the two systems, though, is that
the claim information for the tort system claimants is
available to the public largely and takes place under the
sunlight of the disclosure in the court systems. The trust
system disposition or claims disposition occurs behind closed
doors, and that information is not available to other
stakeholders or folks who may need to know or could benefit
from that information.
Now, it is the same people, the same claimants, that are
seeking recovery in each system. And the proposed legislation
that we are talking about today is not about who is a good guy
and who is a bad guy, and putting white hats or black hats on
people or entities. It is just about information, and it is
about making sure that all of the stakeholders in this claims
process have access to the same information regarding what
claims are being made, and of whom, and what is being alleged
in all of those claims.
I reference in my comments the Garlock opinion. It is a
bankruptcy opinion out of the Western District of North
Carolina. I am sure we will have some more discussion on that.
But the teaching in that claim or in that decision was that the
bankrupt entity, Garlock, was paying 10 times more in the tort
system than the bankruptcy court felt that it should have paid
had it had access to all of the information regarding other
exposure claims that its claimants were making.
Now, while it is correct that I have personally not worked
with the trusts, I can only presume, though, that each trust
would benefit from the same information, and knowing what
claims were made and what allegations of exposure were being
made, and what diseases were being alleged by the various trust
claimants. At this point, all these trusts exist in a vacuum.
If that information was open, it would not only benefit
defendants. It would benefit the trusts in evaluating the
claims to it.
The arguments against transparency even from my perspective
just do not seem to resonate. An asbestos claimant in the tort
system makes full disclosures of his or her medical history and
medical records. They provide Social Security printouts. They
provide tax returns. They provide all sorts of wage
information. There is no information that is submitted to the
trust that is not made available within the civil justice
system.
And the most important thing, from my perspective, is that
nothing in this legislation relates to compensation or costs
any claimant one cent in compensation. The effect of this
information and what that may be is a function of state courts
and the recovery systems that are available on a state-by-state
basis. All the legislation provides for is information and
enables all of the stakeholders in that litigation to have
access to the same information.
Thank you very much, and I appreciate your time.
[The prepared statement of Mr. Vari follows:]
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__________
Mr. Marino. Thank you, sir.
Mr. Scarcella, please.
TESTIMONY OF MARC SCARCELLA, PRINCIPAL,
BATES WHITE ECONOMIC CONSULTING, WASHINGTON, DC
Mr. Scarcella. Thank you, Mr. Chairman, Members of the
Subcommittee. I will be addressing a number of Mr. Inselbuch's
concerns throughout my testimony. But one in particular that I
think is important to address right off the bat is that while
it has been a number of years since I was the statistician and
data management specialist for the Johns Manville trust, I did
spend more than 7 years as a consultant to trustee boards,
future claimant representatives, to trustees, where I regularly
received and analyzed trust data extracts at the claimant level
that far exceeded the level of detail requested here in the
FACT Act. And I was able to receive that data in short
turnaround at far less cost than opponents of this bill seem to
posture will actually take place.
I have testified two times before, both in 2012 and 2013.
And I can say that since that time the problem has gotten
worse, or, at the very least, the problem has been partially
exposed by cases such as the Garlock bankruptcy. I do not
intend to speak at length about the Garlock proceedings, but
its relevancy to this hearing and this bill is clear.
Transparency uncovers inconsistent, specious, or potentially
fraudulent claiming behavior. And moreover, a system of
standardized transparency, as proposed by the FACT Act, will
help deter such activity in the future.
Since I last testified in 2013, there has continued to be a
rapid depletion of trust assets that far exceeds trust
forecasted expectations. Since 2009, 23 trusts have had to
lower the net payout that they provide to claimants because
claim rates and payments rates have exceeded what they
expected, 23 trusts.
There are currently 50 trusts operating over a corpus of
total assets close to $30 billion, yet there are no
standardized requirements for reporting or disclosure. To the
extent that these advanced accelerated rates that exceed what
the forecasts expected by these trusts have anything to do with
inconsistent, tenuous, or potentially fraudulent claim
behavior, transparency would be the appropriate response and
solution to curbing such activity in the future, thus
preserving money not just for claimants today, but claimants in
the future.
The point I just brought up about 23 trusts lowering their
net payouts to claimants since 2009, a claimant today receives
on average 50 percent less in most cases than a similarly-
situated claimant received just in 2009. And claimants who get
sick and make claims next year, 5 years now, 10 years from now,
which are all claimants that these trusts owe a responsibility
to, are going to receive even less if the problem is not
stopped now. There is still $30 billion. We should bring some
more transparency to the system.
Which will bring me to my final set of points which have to
do with cost because it is difficult to weigh the benefits of
any proposed legislation without talking about costs incurred.
As I mentioned in my opening, I received regularly claimant-
level data from various trusts at a level of detail that far
exceeded anything that is being requested here under the
quarterly reporting requirements of the FACT Act. I received it
quickly, and I received it at very little cost to anyone. I was
able to analyze it and make use of it.
The quarterly reporting requirements of the FACT Act
require detail in a tabulated form that the trust can produce
in an easy and repeatable way, especially information regarding
the site, occupation, and dates of exposure, which is
information that is submitted electronically through
standardized claim forms and stored electronically.
Moreover, the burden of discovery under Part B of this bill
shifts the cost away from the trusts and onto defendants. If a
third party defendant or insurer would like to gain additional
information that is not provided in the quarterly reporting
disclosures, they can request it, but it is at their cost. And
I think that shift in cost burden, as well as the transparency
that could help deter future inconsistent or fraudulent
claiming activities, makes the FACT Act a reasonable, sound,
and useful piece of legislation for preserving trust assets for
future claimants.
Thank you.
[The prepared statement of Mr. Scarcella follows:]
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__________
Mr. Marino. Thank you, sir.
Professor Brickman?
TESTIMONY OF LESTER BRICKMAN, BENJAMIN N. CARDOZO DISTINGUISHED
PROFESSOR OF LAW, YESHIVA UNIVERSITY, NEW YORK, NY
Mr. Brickman. Mr. Chairman, Members of the Subcommittee, I
want to thank you for this opportunity to address the critical
issues of how to check the fraudulent practices that permeate
mesothelioma litigation today.
Approximately a year and a half ago, I testified in the
Garlock bankruptcy as an expert witness for Garlock, that the
settlements that Garlock had entered into in the period 2005 to
2010, which the lead plaintiff's expert had relied on for his
calculation that Garlock should fork over $1.3 billion to the
trust to cover its asbestos liabilities, was simply not a valid
basis for these projections. The reason I gave was that these
settlements were infected by plaintiffs' counsels' strategy of
suppressing evidence of claimants' exposures to a group of
large companies that were bankrupted in the years 2000 and
2001.
The presiding judge in Garlock, Judge Hodges, agreed,
finding that, ``The estimate of Garlock's aggregate liability
are infected with the impropriety of some firms.'' I think the
attempts by Mr. Inselbuch that you heard today and others to
marginalize Judge Hodge's finding would not rattle in a
thimble.
Permit me to briefly explain how this illegal and unethical
suppression of evidence is carried out. Plaintiffs' counsel,
who have effective control over the creation and administration
of bankruptcy trusts, have used that power to include, amend,
or add provisions to trust distribution procedures, known in
the trade as TDPs, designed to limit, if not preclude,
defendants' ability to use discovery, to access information,
evidence that a tort plaintiff has filed trust claims. In
filing a trust claim, a claimant must demonstrate ``meaningful
and credible exposure to the products of the company funding
the trust.''
To facilitate fraud, asbestos trusts have modified or
adopted TDPs to include provisions designed to allow claimants,
who are also suing defendants in the tort system, to prevent
tort defendants from accessing exposure information and other
vital information submitted by the claimants as part of the
trust claims. Now, I have more fully described these provisions
in my written statement and in my scholarship.
Now, in the teeth of this overwhelming evidence that exists
today that some plaintiffs' counsels' practices are designed to
defraud defendants, plaintiffs' counsel continued to deny any
fraudulent practice or practices in mesothelioma litigation.
For example, we just heard Mr. Inselbuch, who has testified
previously as he has testified today, that fraudulent actions
to suppress the production of exposure evidence submitted with
claim filings are essentially non-existent. And as for the
massive fraud in the Canadian case, which I presume some of you
are familiar with, he testified previously before this
Subcommittee that it was ``an isolated incident remedied by a
State court, involving inconsistent trust claims with respect
to a single claimant, one of the millions who have filed claims
with asbestos trusts.'' There has also been congressional
testimony from plaintiffs' counsel, Charles Siegel, to the same
effect. Now, because of time I will have to rely on my written
statement that goes further into this.
Now, much of the evidence that was presented in the Garlock
proceeding, including my expert report in particular, still
remains under seal, though I understand that this will start to
come out in about 2 weeks. Now, the Garlock evidence that Judge
Hodges did disclose in his order as to the frequency of
apparently perjurious denials of exposures, the products to
which plaintiffs had asserted ``meaningful and credible
exposure,'' coupled with plaintiffs' counsels' brazen
manipulation of TDPs to facilitate such denials, lead, in my
opinion, to an inexorable conclusion: the practice of
deliberately failing to disclose evidence of other exposure is
far closer to the norm than the exception. Indeed it is likely
that cases in which fraud has been successfully employed dwarf
the number of cases in which abuse has been discovered.
Now, improper trust payments no doubt have amounted to
billions of dollars to this point. As for tort defendants, it
is simply not possible to even begin to estimate how much money
they have paid out as a consequence of plaintiffs making false
statements as to product exposures. Undoubtedly, it amounts to
hundreds of millions of dollars, but more likely billions. And
it is improbable, to say the least, that the scheme to suppress
evidence of other exposures is being hatched by plaintiffs.
Mr. Marino. Sir, would you please wrap up your testimony in
your next sentence?
Mr. Brickman. Yes, sir. Judge Hodges in his estimation
order in the Garlock bankruptcy has allowed us to peer behind
the asbestos curtain that shrouds the inner workings of this
highly successful scheme to use the judicial system to defraud
asbestos defendants and their insurers out of billions of
dollars. It is now up to the Congress to take the critically
important step of enacting H.R. 526 to contain this massive
fraud that now permeates mesothelioma litigation.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Brickman follows:]
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__________
Mr. Marino. Thank you. The Chair now recognizes the
gentleman from California, Mr. Issa. I have a policy of, since
I am going to be here, of waiting to go last, and let my
colleagues go before me.
Mr. Issa. And, Chairman, I have a policy that if my
colleague from Texas is walking in, as you recognize me and he
is supposed to go first, that I yield.
Mr. Marino. That is fine.
Mr. Farenthold. I apologize. I picked up a bit of a cough.
I had to get a cough drop, or I would not have been able to get
a sentence out. And I appreciate, and I have reviewed you all's
testimony.
Mr. Inselbuch, yes, I talked a little bit earlier about a
judge in the district I represent in Corpus Christie, actually
retired now, Jan Jack, who exposed widespread fraud in asbestos
litigation. And while her stand on shady medical litigation
practices serve to get rid of some of the claims, she said that
they were neither driven by health or justice. We still have
strong indications that some of the same activities persist
today in the asbestos trust system.
In your written testimony, you state there is not a
scintilla of evidence of fraud in the asbestos bankruptcy
system. Yet the judge in the Garlock case where you served as
counsel to the Asbestos Claimant's Committee, they found a
startling pattern of misrepresentation in 15 cases where the
judge allowed full discovery and went on to state that those 15
cases were not isolated or unique, but rather stated, ``It
appears certain that more extensive discovery would show more
excessive abuses.'' Were there misrepresentations in the 15
cases highlighted in that decision?
Mr. Inselbuch. No.
Mr. Farenthold. Okay. Mr. Brickman, you have indicated in
prior testimony that some of the profit-driven screening
tactics that Judge Jack pointed out may or soon will be used to
generate additional claims for asbestos trusts. Can you please
tell me more about the situation and how the FACT Act would fix
that?
Mr. Brickman. Plaintiffs' counsel back at the time of Judge
Jack's decision in about 2004, 2005, were, just as today,
denying that there was any fraud in the asbestos litigation
system. At that period of time, the major cases--that is, the
majority of cases--were non-malignant cases, asbestosis.
Hundreds of thousands of asbestosis cases that were the product
of what Judge Jack said was a scheme by plaintiff lawyers,
litigation doctors, and screening companies to manufacture
diagnoses for money. In other words, the vast majority of those
hundreds of thousands of claims were bogus, fraudulent. I think
the evidence on that is overwhelming.
Now, what we heard with regard to that finding by Judge
Jack is again repeated today with regard to mesothelioma
litigation. It is the same script, just a few words changed.
Despite the clear example of massive fraud that she exhibited,
which confirmed what I had written previously, plaintiffs'
counsel said----
Mr. Farenthold. And it is your belief that it is going on
today, and the FACT Act will help fix it.
Mr. Brickman. It is going on today, just in a different
form, except that now more money is involved.
Mr. Farenthold. Some of my colleagues on the other side of
the aisle expressed some concern about the privacy of
plaintiffs and their medical records. Let me read you exactly
what this says. It says, ``A trust described in Paragraph 2
shall, subject to Section 107(a), file with the bankruptcy
court not later than 60 days at the end of each quarter a
report that shall be made available on the court's public
document with respect to such quarter, that, one, describes
each demand the trust received from, including the name and
exposure history of a claimant and the basis for any payment
for the trust made for such claimant, and, two, does not
include any confidential medical records or the claimant's full
Social Security number.''
So basically, all we are asking for is you were exposed by
company X, Y, Z, and you got--I mean, we are just basically
asking, so you do not go sue three different companies for the
same deal. One of our goals here is to lower the cost of
litigation and going through a costly discovery process to get
to that, which is sometimes difficult to get to. We are trying
to make it easier for plaintiffs and defendants here. Do you
think this is an invasion of the medical privacy, or is this
stuff that would normally come out during any sort of
litigation?
Mr. Brickman. That claim is simply a red herring, sir. If
you file a tort action in a State court or a Federal court
claiming that you were injured, you have to provide in a public
forum a great deal more information than is to be disclosed by
H.R. 526. In other words, the claim that this is an invasion of
privacy is just utter nonsense. It is a make-way claim that is
not even gossamer. So the bottom line is, anybody can say
anything by way of an argument. This is an argument that has no
credibility whatsoever.
Mr. Farenthold. Thank you very much. I see my time has
expired.
Mr. Marino. Thank you. The Chair now recognizes the
gentleman from Georgia, the Ranking Member, Mr. Johnson.
Mr. Johnson. Thank you, Mr. Chairman. Before I begin my
questions and before we start running the clock, I would like
to ask unanimous consent to submit several materials into the
record. These include an internal memo from National Gypsum
Company stating, ``Just as certain as death and taxes, if you
inhale asbestos dust, you get asbestosis.''
Also to be submitted for the record with unanimous consent
an internal memo from Honeywell stating, ``If you enjoyed a
good life while working with asbestos products, why not die
from it?'' Also an internal industry discussion on asbestosis
resulting in the unanimous decision not to admit liability in
discussing defensive strategies, as well as an internal memo
that chronicles damaging industry documents dating to 1934,
explaining that the plaintiffs' bar will probably take the
position, not unreasonably, that the documents are evidence of
a corporate conspiracy to prevent asbestos workers from
learning that their exposure to asbestos could kill them.
Mr. Marino. Without objection----
Mr. Farenthold. While I am not going to object to those
being admitted, I would like to question their relevance to a
disclosure. But I have no problem with them going in.
Mr. Marino. Without objection, the documents will be
entered into evidence, and if at some point the determination
needs to be made on an issue that Mr. Farenthold raised, we
will address that at that time.
Mr. Johnson. Thank you, Mr. Chairman. Mr. Inselbuch, do you
agree with this timeline? Excuse me. Let me ask you to take a
look at the timeline assembled by the Environmental Working
Group, this timeline, which is a small collection of internal
memoranda from asbestos corporations that I have submitted into
the record, represents a century of corporate fraud on the
public. It contains evidence amply demonstrating the actual
knowledge of corporations concerning the dangers associated
with asbestos exposure dating back to 1934, evidence of
corporations intentionally misleading the public about the
widespread use and catastrophic effects of asbestos in home
schools and workplaces.
Mr. Inselbuch, do you agree that this timeline, along with
the other examples in your testimony indicate that asbestos
corporations have defrauded the public for decades through a
massive corporate cover up?
Mr. Inselbuch. I have not had an opportunity to look at the
specific timeline, but I certainly agree with the set of facts
that you have recited. Indeed the asbestos industry is the most
outrageous example of corporate misconduct this country has
ever seen.
Mr. Johnson. Thank you. Thank you. And the majority
witnesses have testified that though deeply regrettable,
evidence of fraud has no bearing on the current corporate
practices. Please describe contemporary tactics by the asbestos
corporations to reduce asbestos liability, including recent
litigation involving Georgia-Pacific, a Koch Industries
subsidy.
Mr. Inselbuch. Well, as I said in my opening remarks,
asbestos victims are exposed in the course of their employment
to the products of dozens, if not hundreds, of culpable
defendants. And they have a right to recover from each and
every one of those defendants in the tort system or when they
go bankrupt from their trusts. What the current defendants
would have this Committee believe and the world believe is that
somehow because the claimants are collecting from trusts, that
somehow they are being overcompensated by the defendants in the
tort system.
Mr. Johnson. And that is something that I want to get
further elaboration on you from, but perhaps one of the other
questioners can elicit that information.
Mr. Inselbuch. Okay.
Mr. Johnson. I would like to move on now to Mr. Vari. Mr.
Vari, as a lawyer representing asbestos corporations
responsible for killing and then covering up the deaths of
Americans across the country, I am particularly interested in
hearing your thoughts on this issue of transparency, which
proponents of the FACT Act, including yourself, argue will add
more transparency and truth to the asbestos trust system.
Now, Mr. Vari, your client, Crane Company, routinely seeks
confidentiality agreements when settling their asbestos
exposure claims, is that not correct? You routinely use these
confidentiality agreements, correct? Yes or no.
Mr. Vari. They are part of settlements, and the reason I
hesitate is I am here in a personal capacity and not behalf
of----
Mr. Johnson. I understand that.
Mr. Marino. Please let the witness answer your question
first.
Mr. Vari. I will say that----
Mr. Johnson. I do not want the witness to filibuster and
use my time. I just want a yes or no answer.
Mr. Marino. Well, we will approach that if that is the
case, but let the witness answer your question.
Mr. Vari. I will do my best.
Mr. Johnson. Mr. Chairman, if he will answer it yes or no,
that will be----
Mr. Marino. He has a right to explain reasonably.
Mr. Johnson. After he answers yes or no.
Mr. Vari. No. Then the answer would be no.
Mr. Johnson. All right. Okay. And you seek increased
transparency from victims, but would you also for purposes of
leveling the playing field and in the interest of fairness
support legislation that would ban confidentiality agreements
from asbestos litigation settlement agreements?
Mr. Vari. On a personal level, I am not sure. But I can
tell you that in the tort system----
Mr. Johnson. So is that a yes or no?
Mr. Vari [continuing]. The plaintiffs resist disclosure of
settlement information. In my experience more often
defendants----
Mr. Johnson. Well, I am asking about defense policy. Since
we are talking about transparency, it seems only to be fair
that if you are going to have transparency from plaintiffs or
from claimants, you would also seek it from defendants. And one
way that defendants keep from having to be transparent is to
insist upon confidentiality agreements. And if you like that
process, if you support that process, then say you do. If you
do not, then it is simple to say you do not.
Mr. Vari. It is unnecessary because the plaintiffs already
possess the settlement information. The plaintiffs collect the
settlements. They know what the amounts are. So there is
nothing being withheld from the plaintiffs in any settlement
regarding information.
Mr. Johnson. Mr. Vari, that answer----
Mr. Marino. Okay. The gentleman's time has expired. The
Chair now recognizes Mr. Issa from California.
Mr. Issa. Thank you, Mr. Chairman. Would the ladies and
gentlemen that were affected by asbestos please stand again?
[Audience members stand.]
Mr. Issa. Just a shake of head, if you do not mind. You are
not under oath. Do you all either have current cases or have
you settled?
[Nonverbal response.]
Mr. Issa. So everybody is involved in that level of either
a suit or having settled. Thank you.
Mr. Chairman, my questions for each of the witnesses will
fall along a simple line. I understand bankruptcy and I
understand diminishing amounts of money. As I understand it,
there is a fixed amount of money in the trust of bankrupt
entities, and this will represent the entire settlement whether
there is one more litigant, no more litigants, or an infinite
amount of them. So let me go through the question, because Mr.
Conyers in his opening statement implied that somehow we would
be unfair to people if, in fact, we tried to ensure that only
those who were actually affected by asbestos--not exposed, but
affected by asbestos--were, in fact, given a settlement.
So, Mr. Inselbuch, I will start with you and I will go
right down the line. Would you agree that, in fact, if we run
out of money before we run out of actual victims, that, in
fact, the harm will go to those who have been affected by
asbestos and for whom there is no money left?
Mr. Inselbuch. Well, the design of these trusts would not
permit that to happen.
Mr. Issa. What you are saying is that the amounts will keep
getting smaller and smaller, so everyone will get something.
Mr. Inselbuch. That is----
Mr. Issa. So if some of the people behind you were to get a
settlement today and it was more in actual dollars, not even
constant dollars, but in actual dollars, it was more today than
for somebody 2, or 3, or 4 years from now, that would be a
horrible thing for the person later who gets a diminished
amount of money for the same actual damage, would it not be?
Mr. Inselbuch. Yes, and the trusts try very hard to prevent
that from happening.
Mr. Issa. Well, Mr. Vari----
Mr. Inselbuch. But it is very difficult to predict the
future with great accuracy.
Mr. Issa. Well, I am going down each of you, but I think
for each of you next, if you agree with what has been said,
that, in fact, there will be diminished payments eventually
reaching a de minimus amount or nothing if you continue to have
additional claimants. I am not an economist, but I did take
accounting in college in addition to economics. My basic
understanding is for each person that is not a valid claimant
who is somehow taken out of receiving money through kind of
reform, whether it is this or others, we are, in fact,
preserving a larger amount of money for an actual victim. Would
that not be correct, Mr. Vari?
Mr. Vari. Yes, that would. And I also would concur in the
observation that once the money runs out, there is no more
recovery.
Mr. Issa. Okay. So you worked with specificity on a lot of
this. Do you see that exact event happening in which later
victims are going to be shortchanged or all together left out
if we do not ensure, at a minimum, that only those who truly
are dealing with dreaded diseases caused by exposure are put at
the head of the line?
Mr. Scarcella. Absolutely. I think it is important for
everybody to understand that sitting as advisors to many of
these trustee boards are committees of plaintiff attorneys.
They advise the trustees as best they can on current trends in
the litigation. These are men and women who, probably more than
anybody, have their finger on the pulse of claimant filing
trends. Yet time and time again, trust forecasts of
expectations, unclaimed filings, continue to be outpaced by
reality.
So, what concerns me is are there bad actors participating
in this trust compensation system that are staying one step
ahead of the men and women who are trying to advise these
trusts on what their future expectations should be. If there
are such bad actors, then they are going to continue to deplete
funds and keep money away from those who truly deserve it, and
if transparency can help deter that, then I see no reason why
it should not be passed.
Mr. Issa. And, Mr. Brickman, if you will quickly follow up
as our time is expiring.
Mr. Brickman. Trusts are paying out hundreds of millions of
dollars today to claimants who have no valid claims against
those particular trusts. People being defrauded today are the
mesothelioma claimants in particular who are yet to manifest
with the disease. The people defrauding them are plaintiffs'
counsel.
Mr. Issa. Thank you. Thank you, Mr. Chairman.
Mr. Marino. Thank you. The Chair now recognizes the
Congresswoman from Washington, Ms. DelBene.
Mr. Johnson. Mr. Chairman, before Ms. DelBene starts her
questioning, I would like to raise a point of order. What just
happened to me with the Chair trying to extract testimony
beyond the scope of my question and apply our rigorous time
schedule to my time, what that does is prevents me from moving
forward with the questions that I have to ask.
Mr. Marino. Mr. Johnson, you know what the rules are. You
know what the policies are. If you have additional questions--
--
Mr. Johnson. Well, but my point is----
Mr. Marino [continuing]. You put them in writing. Ms.
DelBene, you are up next.
Mr. Johnson. No, no, no. My question----
Mr. Marino. Ms. DelBene, you are up next.
Mr. Johnson. My question I have raised----
Mr. Issa. Regular order. Regular order.
Mr. Johnson. I have raised a point of order.
Mr. Marino. You have stated no point of order.
Mr. Issa. Regular order.
Mr. Johnson. Parliamentary inquiry. Parliamentary inquiry.
And my inquiry is what is the policy when a person is asking a
question on this panel, what is the power of the Chairman to
take over the questioning from that particular----
Mr. Marino. We allowed you almost a minute when you were
introducing documents. I did not time you on that, which is
normally done. You tried this yesterday in a hearing, and we
are not going to tolerate this.
Mr. Johnson. No, no, no.
Mr. Marino. So, Ms. DelBene, are you going to ask----
Mr. Johnson. You have not answered my point of inquiry.
Mr. Marino. Before I go to this side. I have answered your
question.
Mr. Johnson. You have not. No, you have not.
Mr. Marino. Ms. DelBene, are you going to ask questions?
Mr. Issa. Regular order, Mr. Chairman.
Ms. DelBene. An opportunity to----
Mr. Johnson. I am going to yield to Ms. DelBene, but I will
assure the Chair that I am going to take this matter up and
make sure that what is good for the Republican side is also
good----
Mr. Marino. You will see both sides handled equally the
same way.
Mr. Johnson. And I would like for Ms. DelBene to be able to
ask her questions without interruption.
Mr. Marino. The Chair will decide what takes place. Please,
Ms. DelBene.
Ms. DelBene. Thank you. First, Mr. Chair, I would ask
unanimous consent to submit two letters for the record from
victims and their families asking the majority for the ability
to testify at this hearing and also in the last Congress.
Mr. Marino. Without objection, but I do not think you were
here when I stated that the Democrats had the opportunity to
have those people sit at the table, and they chose not to do
it. But it is entered for the record.
Ms. DelBene. I wish they had the opportunity to represent
themselves. In the interest of transparency, my first question
is for you, Mr. Vari. You support transparency in terms of the
victim, information on victims' exposure. And I wondered, do
you also support transparency for asbestos corporations, the
ones that you have represented, so that they can be more
forthcoming with information about the name and location of
asbestos-contained products, work sites, and exposures? Would
you support congressional legislation to do that?
Mr. Vari. I would repeat my answer that the plaintiffs know
that information. The plaintiffs who settle know how much----
Ms. DelBene. But this could be publicly-available
information, which could be important for others to be aware of
as well in the interest of transparency.
Mr. Vari. The existence of a settlement is a matter of
public record in the tort systems. So, to say that my client or
any client of mine--I am using a hypothetical because I am not
here on behalf of a particular client. But the fact that a
client settles has to be a matter of public record, and it is
on a docket. So the same information that is being requested
here, which is what is the basis of the suit, that is in a
complaint. Did my client get sued? Yes. Did the client settle?
That is already in.
Ms. DelBene. It seems like there is an inconsistency
between the depth of information you would require from victims
and the information required from corporations. That is
disappointing that we talk about transparency, but we are not
willing in legislation to look at this in an equal-sided way.
Mr. Inselbuch, I wanted to ask, you talk about some of the
State legislation that has also happened in the interest of
transparency in Ohio, and Oklahoma, and other areas. I wondered
if you could respond to some of the issues on transparency and
also what you have seen from the impact of State legislation so
far.
Mr. Inselbuch. ``Transparency'' is a funny word. Mr. Vari
says, well, the plaintiffs know what they know, and they do,
but the plaintiff who knows about his settlement when he is a
litigant does not know about the other fellow's settlement. And
it is the other fellow's settlement and how much that was that
would be of interest to that plaintiff, and that is what Mr.
Vari and his clients do not want anybody to know about.
And, yes, the fact that there was a settlement, that goes
on a docket someplace, but not the amount of the settlement.
That is never disclosed, and it is never disclosed because the
defendants do not want to disclose it. What they are trying to
accomplish is to get from this Congress a kind of lending
library of information about hundreds of thousands of trust
claims filed. And in companion legislation throughout the
States, they are trying to enact laws, and have been successful
in some jurisdictions, that would require plaintiffs before
they bring cases in the tort system to trial to first file and
resolve their claims against the trusts.
This will shift a number of the values in how cases are
resolved in the tort system and will reverse the rule that we
have longstanding in the tort system that the plaintiff is the
master of his case and decides who he sues, and who he settles
with, and when. And the whole purpose of this is to get
unreasonable reductions and delays in the tort system based
upon this ironic request for transparency in the trust system.
I would also add, Mr. Brickman would like you to believe
that the information that was so-called withheld from the
Garlock defendant is information that the defendants in the
tort system never have. Nothing could be farther from the
truth. I suspect that Mr. Vari, who has been in the tort system
for 25 years, has an extensive library on where any one of
these tort system plaintiffs can collect from trusts just based
on their work history. And if he does not, he can buy it from
Mr. Scarcella, who sells it to the public based upon his
ability with a computer to just plug in all of the places where
trusts will pay, and cross-ref that with the work history of
any one of these plaintiffs.
The defendants are not missing anything. They know
everything. They want this list so that they can further
prevent asbestos plaintiffs from pursuing their legitimate
claims in the tort system, and they want to offset the
plaintiffs' claims in the tort system with things they would
not otherwise be entitled to.
Ms. DelBene. Thank you. I know my time is going to expire,
so I yield back, Mr. Chairman.
Mr. Marino. Thank you. The Chair now recognizes Mr. Bishop
from Michigan.
Mr. Bishop. Thank you, Mr. Chairman, and I would like to
take a moment to thank everybody that has come today. My heart
goes to all of you for what you have been through, and I hope
that this hearing is a reflection of the fact that inasmuch as
it looks like there is some infighting here, that there is a
true effort to try and make the system better and address some
concerns. And I, for one, am grateful for you being here today.
I am grateful for the panel to be here today to share their
experience as well.
Mr. Vari, I have heard varying degrees of testimony today
with regard to double dipping, and I am wondering if you might
be able to--I have heard that it does not exist. I have heard
that it does exist. I assume that it is somewhere in the
middle, but if you could share with me your experience.
Mr. Vari. Sure. I do not think that anyone quarrels with
the notion that no one should recover for the same injury
twice. Where we seem to be hung up on is how much information
will be available to allow anyone to make that determination.
So, you know, are there recoveries that occur that are
above the true value of the claim? As Mr. Inselbuch said, most
of these claims are settled, so, you know, in that instance it
would require an estimation. But certainly there are a lot of
recoveries going on and occurring in the trust system that are
not made available to the tort system defendants. So, if
nothing else, transparency would at least enable one to say
that it does not happen, but in the absence of a meaningful
cross-flow of information, it could happen, you know, and it
likely does happen. But without the information, there is no
way to really study the question.
Mr. Bishop. Thank you very much. I also have a question for
Mr. Scarcella. Sir, I appreciate your testimony, and wonder if
you might expound a little bit on the portion of your testimony
where you talked about the discrepancy between disclosures made
in State court and the asbestos bankruptcy system. It is a lot
of nuance, and I am wondering if you can share with me the
difference between the two systems.
Mr. Scarcella. Was that question for me for Mr. Brickman?
Mr. Bishop. Either, or, whatever. I know both of you have
ample knowledge in this area. It was to you, sir, but either
one would be fine.
Mr. Scarcella. Well, I will defer to Professor Brickman
since that who was intended----
Mr. Bishop. Yes, sir, thank you.
Mr. Brickman. The issue is very simple once you understand
the facts. And this Committee has benefitted by the fact-
finding by Judge Hodges in the Garlock bankruptcy. What he
found out, based upon the evidence presented, was that
plaintiffs in the tort system when they sue somebody in State
court, they are denying exposure to the products of the
bankrupted companies, like Owens Corning, and GAF, and
Armstrong World Industries, and U.S. Gypsum, and on and on.
Now, at the same time in some cases, or during the course
of that trial, or subsequent to that trial, they are putting in
claims to the trusts. For example, Pittsburgh-Corning
manufactured a very, very virulent product in terms of asbestos
content, Unibestos. In the tort case, they are asked, were you
exposed to Pittsburgh-Corning's Unibestos. They say no under
oath in interrogatories, in depositions, and in trial
testimony, and their lawyers argue to the jury there was no
such exposures. Then their lawyers file trust claims in which
they say there is meaningful and credible evidence of exposure
to Unibestos. That is as plain as I can make it.
Mr. Bishop. Thank you, sir. I yield back my time.
Mr. Marino. Thank you. The Chair now recognizes the
gentleman from New York, Mr. Jeffries.
Mr. Jeffries. Thank you, Mr. Chairman, and let me thank the
witnesses for their presence here today, and certainly we thank
all of the victims and their families for your presence here
today. And certainly you have been subjected to something that
no American should have to deal with in terms of the asbestos
exposure, and now this fight to ensure that you are justly
compensated.
Let me start with Mr. Scarcella. You are here today in
support of the FACT Act, correct?
Mr. Scarcella. Correct.
Mr. Jeffries. And as far as you know, the victims of
asbestos, those who have been exposed unjustly to asbestos and
mesothelioma, other forms of cancer, they do not support the
FACT Act, correct?
Mr. Scarcella. That is what has been told to me today.
Mr. Jeffries. And as you understand it, the trusts do not
support the FACT Act, correct?
Mr. Scarcella. Correct.
Mr. Jeffries. So other than the asbestos industrial
complex, who in terms of interested stakeholders actually
supports the FACT Act?
Mr. Scarcella. I cannot speak for who else supports the
FACT Act. I know I support it.
Mr. Jeffries. Why do you support it, sir?
Mr. Scarcella. Why do I support it? Because I have had the
unique perspective of working both in the trust and tort
system. I know how both processes work, and I know how damaging
the premature depletion of trust assets can be. Just last
April, the UNR Asbestos Trust, which was one of the first
asbestos trusts that was confirmed in the early 1990's, filed a
motion with its bankruptcy court requesting early termination
by 2019 because it is simply running out of money. And at the
heat of their request was a claim that they received more
claims and paid more claims than they expected.
Mr. Jeffries. Right. So, you do not believe that there is
any evidence of fraud as it relates to the administration of
these trusts, correct?
Mr. Scarcella. No, I do not think the management of these
trusts is acting in any fraudulent way. I think it really comes
down to a system that is set up in a way that could allow and
incentivize bad actors to infect it. It is not to say that all
plaintiff attorneys do not act appropriately. Certainly, I
think the plaintiffs all do. They put a lot of trust in their
counsel. But it is a system that is set up to allow bad actors
to take advance of certain loopholes.
Mr. Jeffries. Right, but we are putting the cart before the
horse because we are here to try and correct a problem that
does not exist. There is no evidence, you have just
acknowledged, of fraud in the administration of the trusts. Do
you think there is evidence of waste or abuse?
Mr. Scarcella. Well, no, I believe, at least my
understanding of your question was that was there fraud being
conducted at the management level of the trusts.
Mr. Jeffries. Right.
Mr. Scarcella. I am concerned that there may be
inconsistent or potentially fraudulent claimant behavior being
conducted by bad actors, such as plaintiff attorneys, who file
with the trusts. That is my concern. You have to keep in mind,
as Mr. Vari put correctly in his direct testimony today, these
trusts operate in vacuums. There are 50 trusts controlling
collectively almost $30 billion in assets, and they do not
really interact with one another at the claim resolution level.
I----
Mr. Jeffries. Sir, let me ask you a question there. Are you
familiar with the 2011 GAO report that studies the
administration of these trusts?
Mr. Scarcella. Very much so.
Mr. Jeffries. Am I correct that it looked at, I believe, a
23-year period with respect to these trusts, correct?
Mr. Scarcella. I do not know that, but I will take that to
be accurate.
Mr. Jeffries. 22, 23 years, from 1988 to 2010, and analyzed
about 3.3 million claims, correct?
Mr. Scarcella. Again, I will take your word for it.
Mr. Jeffries. Over $17 billion in payouts, correct?
Mr. Scarcella. Again, I will take your word for it.
Mr. Jeffries. And not a scintilla of evidence that so-
called plaintiff attorney bad actors had actually managed to
pull off a fraud resulting in an inaccurate payment, correct?
That is what the GAO concluded.
Mr. Scarcella. Yes, and I addressed that in my testimony.
The fact that there was no fraud self-reported by these trusts
that they interviewed--it was self-reported----
Mr. Jeffries. Thanks for raising that----
Mr. Scarcella [continuing]. Is not an indication there is a
lack of a fraud, but more a serious indication of the lack of
ability for these trusts----
Mr. Jeffries. Sir, let me reclaim my time----
Mr. Scarcella [continuing]. To actually audit properly.
Mr. Jeffries. Sir, let me reclaim my time only because the
Chairman has been particularly rigid, as I understand it, with
respect to the 5-minute rule. The GAO report, which was
requested by then Republican Chairman, Lamar Smith, never
contested the GAO report in terms of its methodology. It used a
whole host of publicly-available documents, interviewed trust
officials, court officials, professors, used the RAND study.
And it also had subpoena power if it determined that it was not
getting accurate information. And so, I think the reality is,
again, we are trying to solve a problem with the FACT Act that
simply does not exist. I yield back.
Mr. Marino. Thank you. The Chair now recognizes Mr. Trott
from Michigan.
Mr. Trott. Thank you, Chairman. I want to thank all of the
folks who came here to testify today, and I apologize I missed
some of your testimony. I am new to Congress, and they schedule
you to be in three places at once. I did not know that was part
of the process.
But I practiced bankruptcy law for the better part of the
20 years, did mostly secured creditor work. Never really dealt
with Section 524(g). Did not handle that kind of litigation.
But when we had to file a proof of claim on behalf of a client,
we took that process very seriously. We documented it. We
attested to it. We attached documents. We knew that the claim
would be scrutinized by the debtor's counsel, by the court, by
the U.S. Attorney's Office potentially.
So this transparency seems to me to be quite logical, and
the only thing that I heard earlier when the Ranking Member of
the Subcommittee and the Ranking Member of the whole Committee
were making their comments, they offered two reasons as to why
this was a bad idea. And I would be interested to hear from the
panel briefly, whoever cares to take the question, first that
the disclosures required by the act would compromise the
confidentiality of some of the folks that have suffered because
of asbestos. And then also, that that information would be used
potentially by employers against them. Do any of the folks here
today have concern with respect to the use of that information
given that there are some safeguards in the act?
Mr. Inselbuch. I do.
Mr. Trott. And I see people behind you nodding, so I would
be curious if people who have lost victims or members of their
family have the same----
Mr. Inselbuch. Publishing the information about sick and
dying people for no purpose at all, as the congressman pointed
out, is really pointless. All you do is subject these people to
inquiry, to ignominy, to charlatans who will try and take their
money, and for what purpose? And it is not the same as the tort
system. This would just be put on a court record.
In the tort system, if there is a reason why a plaintiff
wants protection from exposure, there is a judge there. You can
go to that judge and say do not describe this information about
my sick or dying child. Do not describe this information. Do
not publish it.
Mr. Trott. So do you agree there is abuse in the State
court system as suggested in some of the testimony?
Mr. Inselbuch. I am sorry. I could not hear that.
Mr. Trott. So the lack of disclosure is one of the reasons
why people can make conflicting claims. Do you disagree with
that----
Mr. Inselbuch. I disagree with that entirely.
Mr. Trott. Okay.
Mr. Inselbuch. One thing has absolutely nothing to do with
the other. There is no showing of any fraudulent claims. The
whole distortion here is that somebody thinks that maybe
somebody is pulling a fast one somewhere, and for that reason
these defendants want you to provide them with information that
the tort system----
Mr. Trott. Yes, in my experience, I would have to
respectfully disagree. My experience with the debtor's bar in
bankruptcy court and my experience in State court and Federal
court, I think there is substantial abuse, and the act is a
good idea.
So let me move to my next question. Mr. Scarcella, in terms
of the administrative costs of implementing the act, do you
think those costs are exceeded by the costs of not having some
transparency?
Mr. Scarcella. Well, I think the answer to that question
remains to be seen once we have transparency. To the point that
was made under the prior line of questioning, the reason why
the GAO was not provided with any instances of fraud in the 22
years of the trust operation system is because the trusts are
unable to properly audit for consistent exposure allegations
across trusts. The system simply does not allow it, so I am not
surprised that they were unable to uncover fraud. They are not
given the equipment to actually seek it out and find it.
Mr. Trott. All right. Professor Brickman, do you think the
fact that the trusts are largely set up and organized by the
plaintiffs' counsel is one of the reasons that has exacerbated
some of the problems we see?
Mr. Brickman. That is an understatement. First, let me make
clear, the trustees are essentially appointed by plaintiffs'
counsel. So when you hear trustees speak, it is the voice
controlled by plaintiffs' counsel. Every aspect of the trust is
controlled by plaintiffs' counsel. They effectively select not
just the trustees, they populate the two committees that run
the trusts and set up the rules. In all cases but one, they
have been responsible for the appointment of the future claims
representative, who never takes positions opposed to the
interest of the plaintiffs' bar. So, the fact that the trusts
do not support the FACT Act is simply saying that plaintiffs'
counsel do not support the FACT Act because the trustees never
say anything opposed to the interest of the plaintiffs' bar.
Now, in terms of the GAO report, that has been
misrepresented. The GAO report did not look at data. What it
looked at was what did the trustees say about fraud. And as Mr.
Scarcella pointed out, the trustees said we do not see any
fraud. Of course not. They are not looking for fraud. And the
use of the word ``audit'' is completely misrepresented here.
Mr. Marino. The gentleman's time has expired.
Mr. Trott. Thank you, sir.
Mr. Marino. The Chair now recognizes the gentleman from
Rhode Island, Mr. Cicilline.
Mr. Cicilline. Thank you, Mr. Chairman. Thank you to our
witnesses. I first want to begin by thanking the many victims
of asbestos injury and illness who are here and have taken time
out of their lives to be part of this hearing. Thank you for
being present today, and I hope that we will act consistent
with the experiences you have had, and do the right thing, and
defeat this bill.
I want to say to you, Mr. Inselbuch, thank you for your
testimony, and for its clarity, and for giving us a really
important context. And I apologize to witnesses. I have been in
and out. I am in the middle of another hearing, but wanted to
come back for a couple of purposes.
First, I would ask, Mr. Chairman, unanimous consent that a
letter from the Military Order of the Purple Heart be
introduced as part of the record; a letter from the Asbestos
Disease Awareness Organization Voice of the Victims be made a
part of the record; correspondence from the American Federation
of Labor, AFL-CIO; a letter from AFSCME, the American
Federation of State County Municipal Employees; Public Citizen;
the Environmental Working Group; a letter from asbestos
patients and their families; and a letter from Douglas Campbell
of Campbell & Levine.
Mr. Marino. Without objection, so ordered.
Mr. Cicilline. Mr. Inselbuch, I want to ask you, Mr.
Scarcella said that individual trusts operate in vacuums. Can
you explain why this is not the case?
Mr. Inselbuch. Well, every document that governs the
trust's conduct is public. It is on a website. And every one of
those documents was approved by a bankruptcy judge and a
Federal district judge. So, there is no mystery about how the
trust operates.
More than that, every trust's documents state for the
public and for the defendants exactly what is required in order
to recover from that trust. And in many cases, based on that
information, unlike what Mr. Brickman would have you believe,
everybody in the world can tell from any plaintiff's work
history what trusts he can collect from.
Also about audits, there is no vacuum about the audits
either. Indeed, the five largest trusts or five of the largest
trusts that operate and have their claims processed in
Delaware, when they do audits, the audits are, in fact, cross-
ref'd, notwithstanding that Mr. Scarcella did not know that.
They are cross-ref'd one against the other to ensure that the
trusts are not being given inconsistent information in the
claims filing process.
And finally, I would like Mr. Brickman to tell Judge Robert
Parker, retired from the 5th Circuit Court of Appeals, that he
is the tool of the plaintiffs' bar. I would like to be in the
room when that happens.
Mr. Cicilline. Would you also tell me, Mr. Inselbuch, how
trusts evaluate demands for payments specifically to prevent
fraud and abuse, and whether or not the system under which that
process is undertaken is sufficient to avoid or deter fraud?
Mr. Inselbuch. First of all, to my knowledge, more than
half of the claims that are filed with the trusts are not paid.
So it seems that even though they pay very little attention to
it, they seem to be figuring out whether or not the claims
should be paid or not. The information that they get is very
straightforward. It is not difficult for a mesothelioma victim
to prove that they have mesothelioma. The doctors that treat
them will certify to that, and, my god, God bless them, they do
suffer.
Now, the next thing is, were they exposed to the
defendants', the trusts' predecessors, asbestos? That is not
difficult to prove either when you have the work history. The
difference, though, sometimes that Mr. Brickman would like you
to think is fraudulent is the worker 30 years ago when he
worked in the factory, or in the shipyard, or in the ship's
hole worked with product that did not have a label on it. So he
said, yes, I work with insulation products, but he may not have
known who made them. So when he is asked, as he is at a
deposition or an interrogatory, did you work with Unibestos, he
can say I do not know because he does not know.
If he wants to collect money from Unibestos, it is his
lawyer's burden to prove to the court and the jury that that
material that the plaintiff did not know who made it was, in
fact, Unibestos from Pittsburgh-Corning. Once Unibestos is
settled up, if Mr. Vari wants to show that the plaintiff was
exposed to Unibestos, that becomes his burden, and it is his
job to do it. And just saying that the plaintiff did not know
it is not an answer to his burden.
Mr. Cicilline. And just one final question. Can you explain
why trusts treat claimant submissions as confidential? And
conversely, can you explain why the defendant corporations
demand that their settlements be kept confidential?
Mr. Inselbuch. Well, I think that for many reasons, people
that resolve tort cases, plaintiffs and defendants, have
reasons for confidentiality. From the plaintiffs' standpoint,
they might at least want to be free from charlatans who will
come after them because they know they have come into a passel
of money, if for no other reason. From the defendants'
standpoint, they do not want anybody to know what they are
paying and to whom they are paying it because they do not want
to give additional information to plaintiffs. So whether we are
in the tort system or in the trust system, there is a reason
for confidentiality.
But in the tort system, the defendants are perfectly
entitled to subpoena from the plaintiff what the plaintiff has
filed with any trust, and they do it all the time, and they get
it all the time.
Mr. Cicilline. Thank you. I thank you, Mr. Chairman. I
yield back.
Mr. Marino. Thank you. Seeing no others, I am going to ask
my colleague if he has another question he would like to ask.
Mr. Johnson. Well, thank you, Mr. Chairman. I believe I
will. Mr. Scarcella, as an analyst, did you calculate or have
you ever had occasion to calculate the value of the lives of
the millions of future claimants killed or injured due to
asbestos-related disease?
Mr. Scarcella. Yes. In fact, the bedrock of 524(g)
bankruptcy, in order to preserve assets for future claimants,
requires an estimate of what those future financial obligations
will be.
Mr. Johnson. And so, you used your best judgment to come up
with a figure that in the worst case scenario would be high so
that you would be able to advise your clients in terms of how
much potential exposure they would have. Is that correct?
Mr. Scarcella. No, I do not think that would be necessarily
true to advise on the high side of any range of estimates. It
depends on the context in which it is being used.
Mr. Johnson. Okay, thank you. And for Mr. Brickman, do you
get paid by the Manhattan Policy Institute?
Mr. Brickman. No, sir. I had to fill out a form like every
witness did about who he represents. And as I write down on
every testimony I ever give to Congress, I represent myself.
Nobody is paying me. Nobody is paying my transportation. Nobody
is buying my lunch.
Mr. Johnson. Have you ever represented a claimant or a
plaintiff before?
Mr. Brickman. I have not represented anyone. I do not
practice law, sir.
Mr. Johnson. Thank you, sir.
Mr. Marino. I have a couple of questions I would like to
conclude. Okay. The Chairman of the full Judiciary Committee,
Mr. Goodlatte, has some questions.
Mr. Goodlatte. Thank you, Mr. Chairman. No, I am going to
put my statement before the Committee. First of all, let me
start by thanking you for holding this hearing on this very
important legislation that will help those asbestos victims who
must look to the bankruptcy process to seek redress for their
or their loved ones' injuries. Unfortunately, on too frequent
an occasion, by the time asbestos victims assert their claims
for compensation, the bankruptcy trust formed for their benefit
has been diluted by fraudulent claims, leaving these victims
without their entitled recovery.
The reason that fraud is allowed to exist within the
asbestos trust system is the excessive lack of transparency
created by plaintiffs' firms. Due to a provision in the
Bankruptcy Code, plaintiffs' firms are essentially granted a
statutory veto right over a debtor's Chapter 11 plan that seeks
to restructure asbestos liabilities. Plaintiffs' firms have
exploited this leverage to prevent information contained within
the asbestos trusts from seeing the light of day. The
predictable result from this reduced transparency has been a
growing wave of claims and reports of fraud.
The increase in claims has caused many asbestos trusts to
reduce the recoveries paid to asbestos victims who emerge
following the formation of the trust. In addition, instances of
fraud within the asbestos trust system have been documented in
news reports, State court cases, and prior testimony before the
Judiciary Committee. Most recently, news reports have described
numerous accounts of fraud that were uncovered during a
bankruptcy case in North Carolina.
The FACT Act, introduced by Congressman Farenthold, would
combat this fraud by introducing long-needed transparency into
the asbestos bankruptcy trust system. The FACT Act increases
transparency through two simple measures. First, it requires
the asbestos trusts to file quarterly reports on their
bankruptcy dockets. These reports will contain very basic
information about demands to the trust and payments by the
trusts to claimants. Second, the FACT Act requires asbestos
trusts to respond to information requests about claims asserted
against and payments made by the asbestos trusts.
These measures were carefully designed to increased
transparency while providing claimants with sufficient privacy
protection. To accomplish this goal, the bill leverages the
privacy protections contained in the Bankruptcy Code, and
includes additional safeguards to preserve claimants' privacy.
The FACT Act also was deliberately structured to minimize the
administrative impact on asbestos trusts.
I believe that the FACT Act strikes the appropriate balance
between achieving the transparency necessary to reduce fraud in
an efficient manner and providing claims with sufficient
privacy protections. We cannot allow fraud to continue reducing
recoveries for future asbestos victims.
I look forward to hearing testimony from today's panel,
which has already taken place. And I thank the Chairman for
yielding me the time.
Mr. Marino. Thank you, Chairman. Mr. Inselbuch, could you
please tell me who makes up the trust? Who is the trust
comprised of?
Mr. Inselbuch. You mean who the trustees are?
Mr. Marino. Trustees, yes.
Mr. Inselbuch. They are people selected by the litigants in
the bankruptcy that includes the representatives of the
plaintiffs, the futures representative, and the debtor, and
they are approved by the bankruptcy court.
Mr. Marino. And is there----
Mr. Inselbuch. And for the most part, they are retired
Federal and State court judges.
Mr. Marino. Who makes up the panel? Is there not a group of
people who can veto certain issues? Are there not plaintiffs
that make up a committee that have a say in this?
Mr. Inselbuch. There are two fiduciaries appointed
typically under these documents. One is a representative of the
future claimants, and one is a representative of the present
claimants, sometimes called the trust advisory committee.
Mr. Marino. Okay.
Mr. Inselbuch. That committee consists of plaintiffs'
lawyers. The futures claimants' representative and the trust
advisory committee have the same rights under these documents.
They have very little power. The trustees run these trusts. If
the trustees want to amend the trust documents, in other words,
change them from the way they were approved by the bankruptcy
court, then they need, first, if they can get approval from the
trust advisory committee and the futures representative. But if
they do not get that approval, they can go to the bankruptcy
court.
Similarly, if the trustees need to or want to change the
payment percentage, they bring that again to the trust advisory
committee and the future claimants' representative. And if they
both consent, then it will be done. If not, the trustees can go
to the bankruptcy court. Other than that, neither the trust
advisory committee nor the futures claimants' representative
have any significant input into the workings of these trusts.
Mr. Marino. Does the advisory committee have a larger say,
a larger percentage, that 75 percent have to agree to certain
matters?
Mr. Inselbuch. No.
Mr. Marino. So, are you saying it is split evenly on both
sides for the plaintiffs and the defendants?
Mr. Inselbuch. No, there are no defendants there.
Mr. Marino. Okay. So it is plaintiffs and plaintiffs'
lawyers----
Mr. Inselbuch. The trust.
Mr. Marino. Is it plaintiffs and plaintiffs' lawyers?
Mr. Inselbuch. The trust advisory committee, and the role
they have is what I have just described to you.
Mr. Marino. Okay. So do you think that they are going to
step forward and say if there is fraud? Do you think they would
actually step forward and say, yes, there is fraud here?
Mr. Inselbuch. No, but I would be confident that the
trustees would.
Mr. Marino. You say that the court has a major say in this,
is that correct? The bankruptcy judge has a major role in this.
Mr. Inselbuch. The bankruptcy judge has to approve the plan
of reorganization. These are the central documents of that
plan.
Mr. Marino. Can anyone on the committee oppose the judge's
ruling?
Mr. Inselbuch. On the committee?
Mr. Marino. Yes.
Mr. Inselbuch. Well, I would have to think back over 15 or
20 bankruptcies, but, yes, I can think of one where Mr. Vari's
firm was concerned where we had opposition from members of the
plaintiffs' bar. I forget whether they were actually on the
committee to the plan of reorganization itself.
Mr. Marino. What was the process for that?
Mr. Inselbuch. Well, when a plan of reorganization is
presented to the bankruptcy court, a disclosure statement is
sent to all creditors. And all creditors have an opportunity to
file objections, and filed objections, and the objections were
sustained.
Mr. Marino. Okay. If you are saying there is no fraud, what
is the problem then with oversight so you could say, look, we
told you there is no fraud here? What is the problem with
looking into these matters? You have heard time and time again
that in many cases, Oklahoma and Maryland plaintiffs were
disclosed to have filed inconsistent claims between asbestos
trusts and the court. In Ohio, a judge described a plaintiff's
case as lies upon lies after discovering that the plaintiff
received hundreds of thousands of dollars from asbestos
bankruptcy trusts, yet alleged in court that a single product
caused the illness. In Virginia, as the Chairman said, a judge
stated that the case over which he presided was the worst
deception he had seen in over 22 years. Do you not think in
order to clear all this up, there should be some oversight and
these matters looked into?
Mr. Inselbuch. Oversight by whom? Oversight by the
defendants' bar? That is hardly oversight.
Mr. Marino. I did not suggest that.
Mr. Inselbuch. That is putting a fox----
Mr. Marino. Sir, I did not suggest that. Do you not think
there should be some oversight? Perhaps the courts can get
involved in that?
Mr. Inselbuch. I do not see any need for any oversight. I
do not see any evidence of any rampant or systemic wrongdoing
here. And all you are doing is doing the bidding of the
asbestos defendants' bar.
Mr. Marino. And I am going to go back to saying what I did
say. Why not take the opportunity to make that known to the
public based on what I just read here in this short synopsis?
Mr. Inselbuch. How am I supposed to prove to you that I am
telling the truth?
Mr. Marino. You do not have to prove. I am saying that an
oversight committee of some type looks into what documents,
looks into testimony, looks into transcripts, looks into
payouts, looks into the corporations to see if they held
anything back and should be held accountable for it.
Mr. Inselbuch. Well, that is the job of these fiduciary
trustees. That is exactly what they do.
Mr. Marino. It does not seem like it is working out, sir.
Mr. Inselbuch. What?
Mr. Marino. It does not seem like it is working out based
on what has come to light over the past couple of months.
Mr. Inselbuch. Perhaps to you, sir. I am there with them
all the time, and it seems to me that it is working out real
well. The only people that are complaining about these trustees
that I know of are the plaintiffs' lawyers who say the trustees
are too stringent.
Mr. Marino. And how about the judges? When you just said
you wanted Mr. Brickman to make a statement, are you willing to
stand up in front of these judges and simply say to them what
you are saying is not true?
Mr. Inselbuch. This is not the place to re-litigate the
Garlock case.
Mr. Marino. No, it is not the place to re-litigate----
Mr. Inselbuch. Bear in mind what the Garlock case was
about----
Mr. Marino. What we are here to make sure is that it is
fair all the way around. Look, there is no one that has more
sympathy. I had a friend who lost a father to this, and I have
seen what it does, and my heart goes out. And anybody that even
is just around this for a short period of time, particularly
because of their employment, should receive compensation and
good compensation. I am just trying to make sure that there is
a way that we can preserve the dollars to make sure both sides
are playing fair so future victims, who may not even know they
will have it for 10 years, are compensated. That is all.
Mr. Inselbuch. Both sides are not playing fair.
Mr. Marino. Well, that is what we hope to find out, sir. So
I thank you.
Mr. Inselbuch. Thank you.
Mr. Marino. Okay. Ladies and gentlemen, I do not see anyone
else here, unless my good friend wants to ask another question.
I am just joking. [Laughter.]
Mr. Johnson. But I will refrain.
Mr. Marino. This concludes today's----
Mr. Johnson. Thank you, Mr. Chairman.
Mr. Marino. You are welcome. This concludes today's
hearing, and thanks to all of you witnesses for attending. I
want to thank the people in the gallery, and I do understand
what you are going through. My heart goes out. I talk to
people. I think I am going to talk to some victims after we are
done here.
And without objection, all Members will have 5 legislative
days to submit additional written questions for the witnesses
or additional materials for the record.
Mr. Scarcella, Mr. Jeffries had to leave quickly because of
a conflict. I think you may be contacted to write your answer
down on his last question when his time expired. If you do not
know what it was, someone from the Committee will contact you,
all right?
Mr. Scarcella. Certainly. Thank you.
Mr. Marino. This hearing is adjourned. Thank you.
[Whereupon, at 3:17 p.m., the Subcommittee was adjourned.]
A P P E N D I X
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Material Submitted for the Hearing Record
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__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Response to Questions for the Record from Elihu Inselbuch, Member,
Caplin & Drysdale, Chartered, New York, NY
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Response to Questions for the Record from Nicholas Vari, Esq.,
K&L Gates L.L.P., Pittsburgh, PA
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Response to Questions for the Record from Marc Scarcella, Principal,
Bates White Economic Consulting, Washington, DC
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
EXHIBIT ATTACHED
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Response to Questions for the Record from Lester Brickman, Benjamin N.
Cardozo Distinguished Professor of Law, Yeshiva University, New York,
NY
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