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

FURTHERING ASBESTOS CLAIM TRANSPARENCY (FACT) ACT OF 2012

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

HEARING

BEFORE THE

SUBCOMMITTEE ON COURTS, COMMERCIAL
AND ADMINISTRATIVE LAW

OF THE

COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

SECOND SESSION

H.R. 4369

__________

MAY 10, 2012

__________

Serial No. 112-120

__________

Printed for the use of the Committee on the Judiciary

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

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COMMITTEE ON THE JUDICIARY

LAMAR SMITH, Texas, Chairman
F. JAMES SENSENBRENNER, Jr., JOHN CONYERS, Jr., Michigan
Wisconsin HOWARD L. BERMAN, California
HOWARD COBLE, North Carolina JERROLD NADLER, New York
ELTON GALLEGLY, California ROBERT C. ``BOBBY'' SCOTT,
BOB GOODLATTE, Virginia Virginia
DANIEL E. LUNGREN, California MELVIN L. WATT, North Carolina
STEVE CHABOT, Ohio ZOE LOFGREN, California
DARRELL E. ISSA, California SHEILA JACKSON LEE, Texas
MIKE PENCE, Indiana MAXINE WATERS, California
J. RANDY FORBES, Virginia STEVE COHEN, Tennessee
STEVE KING, Iowa HENRY C. ``HANK'' JOHNSON, Jr.,
TRENT FRANKS, Arizona Georgia
LOUIE GOHMERT, Texas PEDRO R. PIERLUISI, Puerto Rico
JIM JORDAN, Ohio MIKE QUIGLEY, Illinois
TED POE, Texas JUDY CHU, California
JASON CHAFFETZ, Utah TED DEUTCH, Florida
TIM GRIFFIN, Arkansas LINDA T. SANCHEZ, California
TOM MARINO, Pennsylvania JARED POLIS, Colorado
TREY GOWDY, South Carolina
DENNIS ROSS, Florida
SANDY ADAMS, Florida
BEN QUAYLE, Arizona
MARK AMODEI, Nevada

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

Subcommittee on Courts, Commercial and Administrative Law

HOWARD COBLE, North Carolina, Chairman

TREY GOWDY, South Carolina, Vice-Chairman

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

Daniel Flores, Chief Counsel

James Park, Minority Counsel

C O N T E N T S

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MAY 10, 2012

Page

THE BILL

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

OPENING STATEMENTS

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

WITNESSES

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

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

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

APPENDIX
Material Submitted for the Hearing Record

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

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

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

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

FURTHERING ASBESTOS CLAIM TRANSPARENCY (FACT) ACT OF 2012

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THURSDAY, MAY 10, 2012

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

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

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

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

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

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

__________

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

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

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

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

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

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

__________
Mr. Coble. Mr. Scarcella.

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

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

__________

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

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

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

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

__________

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

A P P E N D I X

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Material Submitted for the Hearing Record

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

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

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

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

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

suppressing the evidence of its mortal dangers, and then,

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

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

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

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

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

EXHIBIT ``A''

EXHIBIT ``B''

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

__________