Manville Will Settle Asbestos Victims’ Claims
A federal judge here is expected today to formally approve Manville Corp.’s emergence from bankruptcy under a plan that would transfer virtual control of the company to trustees for tens of thousands of disease victims whose ailments were caused by its biggest product--asbestos.
The plan to conclude the company’s 4 1/2-year-long bankruptcy proceeding requires Manville to place at least $815 million in cash, up to 80% of its stock, and much of its future profit into a trust to benefit more than 50,000 and possibly more than 100,000 victims of asbestos disease.
The ruling by Bankruptcy Judge Burton Lifland, while subject to appeals by two stockholder groups, will largely bring to a close one of the largest and most controversial bankruptcies in history. It will leave Manville a vastly different corporation from that which in August, 1982, sought bankruptcy protection from billions of dollars in claims filed by victims of asbestos, of which it was once the nation’s largest manufacturer.
The emergent Manville is no longer in the asbestos business, relying for income instead on its operations in fiberglass, forest products and building supplies.
Manville will be largely under the control of trustees of existing and future health victims of the mineral, who under terms of the trust will control between 50% and 80% of its common stock.
“We are Manville now,” said Leon Silverman, the New York attorney who, as the court-appointed representative of future health victims of the company, was the principal architect of the reorganization plan.
Payments Next July
Judge Lifland remarked Tuesday night, at the completion of a final hearing on the plan, that it appeared to address all outstanding legal requirements. He said he would issue a formal order today. Even if the shareholder appeals are overruled quickly, lawyers say, victims and creditors will not begin receiving money from Manville until next July. At that point it would be the first compensation any asbestos victim received from the company for nearly five years.
Manville’s original 1982 filing was an unprecedented use of the bankruptcy law to take refuge from product-liability damages.
At the time, many plaintiffs’ advocates feared it would become a model for other companies facing such daunting claims. One company that did follow Manville’s lead was A. H. Robins, manufacturer of the dangerous Dalkon Shield intrauterine device (IUD); Robins sought bankruptcy protection in August.
A Difficult Path
But the difficult path of Manville’s trend-setting maneuver may have discouraged many other companies by showing that massive damage claims not only survive a bankruptcy, but the plaintiffs end up controlling the emergent company. “This doesn’t demonstrate that companies can use the bankruptcy system to cut down on claims,” said Mark Roe, a University of Pennsylvania law professor who has written about the Manville case.
‘More Tortuous’
Manville General Counsel G. Earl Parker, one of the architects of the Chapter-11 maneuver, added: “The procedure was much longer and more tortuous than we anticipated when we filed, although I think it was the only course available to us.” Parker said he predicted at the outset, when asked how long the bankruptcy might last, “that if it wasn’t over in one year it would probably take five.”
Still, the completed plan leaves many victims’ advocates in doubt over whether the trust, which could grow to more than $2.5 billion over time, will be sufficient to pay the claims of the countless potential victims of a product that has proved to be one of nature’s and man’s most toxic.
Funds in Trust
The plan requires Manville to place in trust $615 million cash in insurance proceeds and another $200 million in corporate cash and equivalents. Starting four years after the bankruptcy ends, Manville will also have to pay the trust up to 20% of its annual profits, or at least $75 million a year; after the 13th year the payment would be limited by need. The trust will also receive 50% of Manville’s common stock, and preferred stock giving it the rights to another 30% of Manville common if needed to cover health claims.
Manville stock closed in trading Wednesday on the New York Stock Exchange at $1.75 a share, a new low for the year, giving the trust’s stake a present value of between $21 million and $33.6 million. Backers of the plan hope, however, that the new Manville might become successful enough to make the stock worth substantially more.
Manville lost $45.1 million last year but expects to earn a profit of $88.1 million this year.
Lawyers and others who have fought Manville argued Wednesday that despite its uncertainties, the completed reorganization plan was the only one proposed that came close to covering existing and future claimants by ensuring that Manville itself would be healthy enough to continue making money.
‘Finite Resources’
“You have an unknown number of people who with absolute certainty are going to become ill over an indefinite period,” said Silverman. “Then you have a company with finite resources. This reorganization accomplishes the objective of working that company into a position where it comes out of bankruptcy in a condition that generates profits.”
Silverman noted that the plan has several unique features, chief among them its provision for future claimants, or those who may not yet know they have contracted an asbestos-related disease. Such claimants have never before been admitted as creditors in a bankruptcy proceeding.
As is customary in bankruptcy, the company’s existing common shareholders will bear the brunt of the financial strain. Their stake will be reduced to 2% of their original equity. As a result, the common shareholders were the only bankruptcy creditors to vote against the reorganization as a group last month. Lifland has the authority to approve the plan over their objections. Nevertheless, two groups of shareholders have said they will appeal the reorganization plan.
Unprecedented Step
Manville had settled or disposed of 4,100 health claims and had 17,000 more outstanding when it took the unprecedented step of filing for protection from creditors under Chapter 11 of the U.S. bankruptcy code on Aug. 26, 1982.
Unique among Chapter 11 companies, it was still solvent. But its internal projections indicated that it would face damage claims of as much as $1.9 billion through the end of the century; once juries began assessing punitive damages against the company, the potential liability rose sharply.
Under the reorganization, punitive damages will not be paid. The reasoning is that such payments would only reduce the amount of trust money available to pay compensatory claims from victims, and their punitive nature is pointless in a case where the company itself is being operated on the plaintiffs’ behalf.
Today, Manville executives say, the company faces more than 50,000 asbestos health claims in the United States. Company projections are that the total will eventually reach between 83,000 and 100,000. The claims include those from victims of mesothelioma, a cancer of the lung lining; lung cancer; and asbestosis, a debilitating destruction of the lung’s ability to function. At least one estimate by Dr. Irving Selikoff, a prominent New York pulmonary physician, sets the number of potential future cases of asbestos-caused lung cancer at 270,000.
The uncertainty makes projections of the adequacy of the trust fund impossible. Using Manville’s estimate of a maximum of 100,000 future claims, settled at the historical average of $26,000 a case, gives a total liability of $2.6 billion. Using Selikoff’s estimate of lung cancer victims and applying the average settlement payment for those victims of $45,000 each, however, raises the potential liability to $12.15 billion. Average settlements for mesothelioma victims are even higher.
$80 Billion in Claims
Manville has also faced claims from owners of buildings in which asbestos had been installed as insulation. These claims, totaling more than $80 billion, had been filed by 42 states, almost every large city in the country, school districts, hospitals and other entities. “Virtually every type of structure conceivable in the United States has been covered by a claim,” Parker said during Tuesday’s hearing. These claims will be settled through a $125-million fund.
At the time of its filing, Manville was fighting vigorous legal battles with plaintiffs’ lawyers who unearthed evidence that its executives had known since the 1920s of the virulent properties of asbestos, but had never passed the information on to employees or others who worked with the mineral. Manville still denies today that it deliberately withheld any concrete findings of the toxicity of asbestos.
The years of litigation have left a residue of mistrust of the company among many of those lawyers, some of whom served on court-appointed bankruptcy committees over the last 4 1/2 years.
‘An Element of Mistrust’
“There’s always an element of mistrust about a company that was so insensitive to the rights of others,” said Robert B. Steinberg, a Los Angeles lawyer representing more than 1,300 asbestos victims.
Manville executives’ conduct in the early stages of the bankruptcy also inspired acrimony, according to many lawyers involved in the years of negotiations. Several say that then-Chairman John A. McKinney held up talks for months. “His attitude toward asbestos lawyers was they were a bunch of ambulance-chasing bloodsuckers,” said one plaintiffs’ attorney. “It really got in the way.”
McKinney retired earlier this year, with a severance package estimated at $1.3 million.
In an interview Wednesday, Manville’s Parker acknowledged that the early talks went poorly. “Looking back, what I wish had been different was that all of us could have shed some of our self-interest and parochial views and come to a consensual approach,” he said. “There was a long history of litigation between us and the asbestos health claimants, the common creditors (such as banks and suppliers) had been taken off guard by the filing, and they were suspicious. . . . It took time to get over that.”
