[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
FURTHERING ASBESTOS CLAIM TRANSPARENCY (FACT) ACT OF 2013
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
REGULATORY REFORM,
COMMERCIAL AND ANTITRUST LAW
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
ON
H.R. 982
__________
MARCH 13, 2013
__________
Serial No. 113-39
__________
Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://judiciary.house.gov
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79-879 WASHINGTON : 2013
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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
HOWARD COBLE, North Carolina ROBERT C. ``BOBBY'' SCOTT,
LAMAR SMITH, Texas Virginia
STEVE CHABOT, Ohio MELVIN L. WATT, North Carolina
SPENCER BACHUS, Alabama ZOE LOFGREN, California
DARRELL E. ISSA, California SHEILA JACKSON LEE, Texas
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 JUDY CHU, California
TED POE, Texas TED DEUTCH, Florida
JASON CHAFFETZ, Utah LUIS V. GUTIERREZ, Illinois
TOM MARINO, Pennsylvania KAREN BASS, California
TREY GOWDY, South Carolina CEDRIC RICHMOND, Louisiana
MARK AMODEI, Nevada SUZAN DelBENE, Washington
RAUL LABRADOR, Idaho JOE GARCIA, Florida
BLAKE FARENTHOLD, Texas HAKEEM JEFFRIES, New York
GEORGE HOLDING, North Carolina
DOUG COLLINS, Georgia
RON DeSANTIS, FLORIDA
KEITH ROTHFUS, Pennsylvania
Shelley Husband, Chief of Staff & General Counsel
Perry Apelbaum, Minority Staff Director & Chief Counsel
------
Subcommittee on Regulatory Reform, Commercial and Antitrust Law
SPENCER BACHUS, Alabama, Chairman
BLAKE FARENTHOLD, Texas, Vice-Chairman
DARRELL E. ISSA, California STEVE COHEN, Tennessee
TOM MARINO, Pennsylvania HENRY C. ``HANK'' JOHNSON, Jr.,
GEORGE HOLDING, North Carolina Georgia
DOUG COLLINS, Georgia SUZAN DelBENE, Washington
KEITH ROTHFUS, Pennsylvania JOE GARCIA, Florida
HAKEEM JEFFRIES, New York
Daniel Flores, Chief Counsel
James Park, Minority Counsel
C O N T E N T S
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MARCH 13, 2013
Page
THE BILL
H.R. 982, the ``Furthering Asbestos Claim Transparency (FACT) Act
of 2013''...................................................... 4
OPENING STATEMENTS
The Honorable Spencer Bachus, a Representative in Congress from
the State of Alabama, and Chairman, Subcommittee on Regulatory
Reform, Commercial and Antitrust Law........................... 1
The Honorable Blake Farenthold, a Representative in Congress from
the State of Texas, and Member, Subcommittee on Regulatory
Reform, Commercial and Antitrust Law........................... 17
The Honorable Steve Cohen, a Representative in Congress from the
State of Tennessee, and Ranking Member, Subcommittee on
Regulatory Reform, Commercial and Antitrust Law................ 99
WITNESSES
S. Todd Brown, SUNY Buffalo Law School
Oral Testimony................................................. 18
Prepared Statement............................................. 21
The Honorable Peggy L. Ableman, McCarter & English, LLP
Oral Testimony................................................. 43
Prepared Statement............................................. 45
Elihu Inselbuch, Member, Caplin & Drysdale, Chartered
Oral Testimony................................................. 53
Prepared Statement............................................. 56
Marc Scarcella, Bates White, LLC
Oral Testimony................................................. 72
Prepared Statement............................................. 75
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
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
Prepared Statement of the Honorable Steve Cohen, a
Representative in Congress from the State of Tennessee, and
Ranking Member, Subcommittee on Regulatory Reform,
Commercial and Antitrust Law............................... 7
Opposition Letters........................................... 9
Material submitted by the Honorable Steve Cohen, a Representative
in Congress from the State of Tennessee, and Ranking Member,
Subcommittee on Regulatory Reform, Commercial and Antitrust Law
Letters from the trust of future claimants' representatives.. 108
Prepared Statement of the Honorable John Conyers, Jr., a
Representative in Congress from the State of Michigan, and
Ranking Member, Committee on the Judiciary................. 122
Opposition Letters........................................... 129
Material submitted by the Honorable Blake Farenthold, a
Representative in Congress from the State of Texas, and Member,
Subcommittee on Regulatory Reform, Commercial and Antitrust Law
Prepared Statement of the Honorable Bob Goodlatte, a
Representative in Congress from the State of Virginia, and
Chairman, Committee on the Judiciary....................... 145
APPENDIX
Material Submitted for the Hearing Record
Prepared Statement of the Honorable Blake Farenthold, a
Representative in Congress from the State of Texas, and Member,
Subcommittee on Regulatory Reform, Commercial and Antitrust Law 148
Prepared Statement of the Honorable Hakeem S. Jeffries, a
Representative in Congress from the State of New York, and
Member, Subcommittee on Regulatory Reform, Commercial and
Antitrust Law.................................................. 150
Response to Questions for the Record from S. Todd Brown, SUNY
Buffalo Law School............................................. 151
Response to Questions for the Record from the Honorable Peggy L.
Ableman, McCarter & English, LLP............................... 156
Response to Questions for the Record from Elihu Inselbuch,
Member, Caplin & Drysdale, Chartered........................... 162
Response to Questions for the Record from Marc Scarcella, Bates
White, LLC..................................................... 184
FURTHERING ASBESTOS CLAIM TRANSPARENCY (FACT) ACT OF 2013
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WEDNESDAY, MARCH 13, 2013
House of Representatives,
Subcommittee on Regulatory Reform,
Commercial and Antitrust Law
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to call, at 3:37 p.m., in
room 2141, Rayburn Office Building, the Honorable Spencer
Bachus, (Chairman of the Subcommittee) presiding.
Present: Representatives Bachus, Farenthold, Marino,
Holding, Collins, Rothfus, Cohen, Johnson, DelBene, and Garcia.
Staff present: (Majority) John Hilton, Counsel; Ashley
Lewis, Subcommittee Clerk; (Minority) James Park, Minority
Counsel; Susan Jensen-Lachmann, Counsel.
Mr. Bachus. The Subcommittee on Regulatory Reform,
Commercial and Antitrust Law hearing will come to order.
Without objection, the Chair is authorized to declare
recesses of the Committee at any time, and that may not be
necessary now, hopefully.
I apologize for the delay in the hearing, but the President
visited the Republican conference, and that is always good when
the two sides are talking.
We welcome all our witnesses today.
Let me begin by thanking Vice Blake Chairman Farenthold of
Texas and Congressman Jim Matheson of Utah for introducing this
important bipartisan legislation, the Furthering Asbestos Claim
Transparency Act of 2013, or the FACT Act for short.
Let me say this. We are here for one purpose and one
purpose only, and that is to protect those victims of asbestos
exposure. That is our only motivation. We are not here to
protect companies, we are not here to protect the defense bar,
plaintiffs' bar. We are here for the victims, and we are here
to protect their rights and to ensure that justice is served.
We are not here to protect those who are not victims.
Having said that, the Subcommittee on Courts, Commercial
and Administrative Law held a hearing on this bill's
predecessor, H.R. 4369, in the last Congress, and the Committee
reported that bill favorably to the full House. It is important
to have a workable system that provides appropriate
compensation to individuals whose health has been harmed by
asbestos exposure.
Congress became directly involved in this matter during the
early 1990's in the midst of what the Supreme Court described
as an asbestos litigation crisis. As a result of this crisis,
many companies facing potentially massive liability claims
began to file for bankruptcy. This was not a good situation for
asbestos victims seeking assistance, or for companies and their
employees. No benefits can be paid by a company that has gone
broke or shut down. The same thing is true of a trust that has
been depleted.
In 1994, Congress amended the bankruptcy code to allow
companies in Chapter 11 to create and fund asbestos trusts
which would be responsible for asbestos victims' claims after
the companies were reorganized. The trust system was meant to
ensure that current and future asbestos victims would be
compensated, while allowing companies to continue operations.
By 2011, 60 trusts have been founded, with over $36 billion
in assets earmarked for asbestos victims. At this point, half
of that money has been paid out in claims.
The enemy of any just compensation system is fraud and
abuse. Fraud and abuse takes money away from real victims who
desperately need help. This is an especially important issue
with regard to the asbestos trust funds, which still face huge
future claims and where every penny counts.
The Wall Street Journal reported on Monday that nearly half
of all trusts have reduced payments to new victims at least
once since 2011 partially in an effort to preserve assets for
future victims. That same Wall Street Journal article raised
serious questions about waste and fraud in the current system.
It disclosed that after virtually no examination, a $26,500
claim was awarded to a person who did not exist. The article
also said that according to a review of claims made to the
Manville trust, more than 2,000--I think the number is closer
to 2,700--applicants could not have been older than 12 years of
age at the time they said they were exposed to asbestos in an
industrial job.
One attorney quoted in the report suggested that preventing
fraud is too expensive and would leave less money to pay
claims. Let me say that I could not disagree with that more
strongly. My experience is that if you do not stop fraud, it
only gets more egregious and more costly.
The trust system is an efficient way to handle asbestos.
Companies who have been the biggest defendants in these cases
have been able to fund these trusts and remain in business. It
is very disturbing that we are increasingly seeing attorneys
aggressively pursue claims outside this process, effectively
establishing a system of double compensation.
Many lawsuits have been filed against small businesses
whose connections to asbestos products in question may be
tenuous at best and who are least able to afford protracted
litigation. That has serious ramifications for our overall
economy.
The trust funds were created with a process designed to
prevent this kind of costly and unproductive legal free-for-
all. The best way to combat fraud and abuse is to increase
transparency and accountability. The FACT Act sets out several
commonsense steps to ensure that consistent, verifiable claims
are made in the trust system and civil litigation. Through
better information sharing, it will improve the evaluation of
claims and help ensure that funds from the trust are spent on
the deserving. This can be done while fully respecting privacy,
which we all know is very important when personal health is
involved.
America is a caring country. We help deserving people when
they are in need. In the case of asbestos exposure, a system
has been specifically put in place to compensate individuals
whose health has been harmed. Fraud, abuse, and inconsistent
claims that drain trusts prevent money from going where it
properly should go, to those with true and demonstrable health
needs.
In conclusion, thank you all for coming today, and thanks
especially to the witnesses for sharing their time and
expertise. This promises to be an informative and illuminating
hearing.
[The bill, H.R. 982, follows:]
__________
Mr. Bachus. At this time, I recognize the gentlelady from
Oregon? From Washington. I keep saying Oregon.
Ms. DelBene. We are close.
Mr. Bachus. That is right.
Ms. DelBene. Thank you, Mr. Chairman. I would like to ask
unanimous consent for the Ranking Member's opening statement,
Mr. Cohen's opening statement, to be submitted to the record.
Mr. Bachus. Absolutely.
[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 Regulatory Reform, Commercial and Antitrust Law
The debate over the necessity to fully compensate victims of
asbestos exposure is very personal to me. One of my best friends was
Warren Zevon, the great singer and songwriter. Warren died of
mesothelioma--a cancer of the chest and abdominal lining that often
results from asbestos exposure--almost a decade ago. So, I come at
today's discussion of H.R. 982, the ``Furthering Asbestos Claim
Transparency Act of 2013'' or ``FACT Act,'' with a bit of a prejudice--
one on the side of asbestos victims.
At first blush, the FACT Act seems reasonable enough. Yet as I
learned about the FACT Act during a hearing on and markup of a
substantially identical bill last Congress, the more readily I came to
conclude that this legislation may be a solution in search of a
problem.
More problematically, it could end up hurting asbestos victims by
denying them full compensation for the harms that they have suffered as
a result of the product that many asbestos manufacturers peddled for
decades knowing that they were dangerous.
H.R. 982 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 victims of asbestos exposure by
ensuring that those asbestos manufacturers and other related defendants
that have filed for bankruptcy cannot escape their responsibility for
the harm they have caused.
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. 982'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. Proponents claim that asbestos
victims engage in fraud by ``double dipping''--that is, presenting
claims to a 524(g) trust and, simultaneously, seeking relief against
another asbestos defendant by filing a state-court civil action.
In weighing this assertion, the most objective source that I could
find was a study of 524(g) trusts conducted by the Government
Accountability Office at former Judiciary Committee 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. 982's additional
requirements on trusts will raise their administrative costs
significantly.
Even with its provision that a party requesting information from a
trust could be required to pay ``any reasonable cost'' of the trust for
complying with an information request, the cost burden on a trust may
not be relieved.
For instance, the bill does not define what a ``reasonable'' cost
is, nor does it specify who would make such determination, thus opening
the door to litigation over these issues and less-than-full payment of
costs.
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. 982'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. 982 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.
For these reasons, I remain opposed to the FACT Act and I urge my
colleagues to oppose this misguided bill.
__________
Ms. DelBene. I would also like to acknowledge the presence
of three asbestos victims in the audience today: Susan Vento,
widow of the late Congressman Bruce Vento; Judy Vann Ness; and
Genevieve Bosilevac, and ask that their letters to the
Committee in opposition to H.R. 982 be entered into the record.
Mr. Bachus. Thank you. So be it.
We extend our welcome to you and, Ms. Vento, to Bruce.
Ms. DelBene. And I would also like to ask that the letters
of two additional asbestos victims, Bill Cawlfield and Julie
Gundlach, in opposition to H.R. 982 also be entered into the
record.
Mr. Bachus. Absolutely.
[The information referred to follows:]
__________
__________
__________
__________
__________
Ms. DelBene. Thank you, Mr. Chair.
Mr. Bachus. Thank you.
Is there anyone on the Democratic side who wishes to be
heard?
If not, we will go to Mr. Farenthold for an opening
statement, 5 minutes.
Mr. Farenthold. Thank you very much, Mr. Chairman. My
service on this Committee and on the Committee on Government
Oversight and Reform are dedicated to eliminating waste, fraud
and abuse in our government, and to that end I have introduced
H.R. 982, the ``Furthering Asbestos Claims Transparency Act of
2013.'' The victims of asbestos-related diseases deserve full
compensation for their injuries, and I am extremely sympathetic
to these claims.
However, the trusts set up to provide justice are shrouded
in secrecy and are frequently abused by claimants and, more
accurately, their lawyers wasting money intended for
mesothelioma and other asbestos-related injury sufferers.
Unfortunately, these trusts are not limitless, bottomless pits
of money.
The problem with fraud in the asbestos compensation system
has been well documented over the past several decades. Often,
fraud is committed when plaintiffs and their attorneys rely on
one set of facts in state court and another set of facts in the
bankruptcy court. This type of abuse can take place when the
system provides no transparency with payouts.
Therefore, this legislation would amend section 524(g) of
the bankruptcy code to require asbestos trusts to file
quarterly reports with the bankruptcy court detailing the
claimant's name and the amount paid to each claimant, the basis
for each payment. We specifically narrowed this bill to protect
the privacy of plaintiffs to the greatest extent possible.
This legislation is fair to all parties and has bipartisan
support. I co-introduced it with Mr. Matheson of Utah.
It is absolutely imperative that we make sure that those
who truly have claims are taken care of, but we have also got
to make sure that we stop the waste, fraud and abuse, and make
sure that there is money there to pay all the claims. Congress
must act to cut back abuse of this system.
Thank you very much, and I will yield back.
Mr. Bachus. Thank you.
Are there other Members wishing to make an opening
statement?
Thank you. At this time, we will welcome our witnesses.
Professor Steven Todd Brown teaches at the SUNY Buffalo Law
School--That is the State University of New York, that is what
SUNY stands for--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 in private practice. 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 his LLM from the Beasley School of Law at Temple
University. He earned his undergraduate degree from Loyola
University in New Orleans.
Do you know the Pope? Have you been following that?
Mr. Brown. I have.
Mr. Bachus. You know we have a new Pope?
Mr. Brown. I just became aware of that.
Mr. Bachus. Yes. But we thank you for your testimony,
professor.
Judge Ableman is special counsel at McCarter and English
LLP in Wilmington, Delaware. Before joining McCarter and
English, Judge Ableman spent over 29 years as a state trial
judge, first in the Delaware Family Court and then on the
Delaware Superior Court, where she presided for 2 years over
the asbestos litigation docket. She has authored thousands of
judicial opinions that have helped shape Delaware law for the
past three decades.
Judge Ableman received her B.A. with distinction from
Simmons College in Boston and her J.D. from the Emory
University School of Law, where she was Notes and Comments
Editor of the Emory Law Journal.
Thank you, Your Honor, for your testimony today.
Our third witness is Mr. Elihu Inselbuch. How do you say
that? Okay. He practices law at Caplin and Drysdale's New York
City office. His practice focuses on complex litigation,
including extensive asbestos creditors' rights litigation and
commercial and securities fraud litigation.
He is past president of the Princeton University Alumni
Association, where he received his A.B., holds an LLP from
Columbia University Law School and an LLM from New York
University School of Law.
I thank you for your testimony.
Our final witness is Mr. Marc Scarcella. Mr. Scarcella is a
manager at Bates White, an economic consulting firm in
Washington, D.C. He specializes in quantitative methods and
their application 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 consultative services in 524(g) Chapter
11 bankruptcy reorganization in the areas of asbestos liability
estimation and insurance allocation.
He has an M.A. in financial economics from American
University and a B.A. degree in economics and public affairs,
also from American University.
Thank you for your testimony today.
Professor Brown, we will start with your testimony, but let
me say this. Each of the witness' written statements will be
entered into the record in their entirety. I ask that each
witness summarize his or her testimony in approximately 5
minutes. I am not going to read this about the yellow light and
the green light and the yellow light. We will turn them on, but
I don't want you to stop in mid-sentence.
TESTIMONY OF S. TODD BROWN, SUNY BUFFALO LAW SCHOOL
Mr. Brown. Thank you, Chairman Bachus and Members of the
Committee. I appreciate the opportunity to discuss the FACT Act
with you today. I will begin by discussing trust performance
data and then turn to a discussion of the fraud question.
Bankruptcy trusts are established as limited funds for
paying all current and future asbestos-related claims of the
debtor. The idea here is that it is equitable to bind absent
future claimants, notwithstanding the fact that they are not
present and cannot ensure the loyalty of those who represent
them in the process, as long as their claims will be valued and
paid in substantially the same manner as similar current
claimants who can speak for themselves.
Since it is a limited fund, if a trust overpays initial
claims in number, in value, or both, the amount left for future
victims is necessarily lower. When that happens, trusts reduce
payment percentages. The percentage of a claim's settled value
is actually paid for all claims going forward. A low payment
percentage may reflect that a trust is and always was
underfunded. But the sheer volume of reductions since 2010,
approximately half of all active trusts, tells us something
more.
First, malignancy and other claims continue to exceed even
relatively recent projections. Second, past claimants have been
overcompensated relative to current and future claimants.
As other defendants leave the tort system and establish
their own trusts, which appear likely to follow the same
pattern, should we really expect future victims to fare better
than plaintiffs who are already grossly underfunded and
undercompensated?
Why are there so many more claims than are projected?
The further criteria get away from testing the intrinsic
merit of claims, the more volumes are based on client
recruiting decisions, which are exceptionally difficult to
predict. This becomes more difficult as practices target claim
standards.
This brings me to the question of fraud. If we are talking
about fraud, we need to understand what exactly we are talking
about. Are we talking about civil or criminal fraud in the
legal sense? If so, we are talking about something that is very
narrow and very difficult to prove, even in the best of
circumstances. Legal fraud is hard to distinguish from honest
mistakes. That makes it hard to prosecute.
I think what we are focusing on when people say fraud in
this area is not legal fraud. They are talking about the
popular use of the term, the idea that the claims appear so
specious that they contradict themselves internally or they
contradict something that has been said elsewhere that many
would look at them and wonder how did that claim even get paid.
It is a normative assessment of the likely merit of the claim
and goes to the policy question more than whether some lawyer
or professional has committed a crime.
Notwithstanding the limited empirical evidence, a survey of
trust terms indicates that they will accept a broader range of
claims than in the tort system, and also probably accept claims
that a lot of us would look at and scratch our heads over.
So even if we cannot demonstrate legal fraud in a case, we
still may reasonably infer that those who make such mistakes
frequently are not merely making mistakes, but they have set up
their procedures so that these happy accidents occur with some
regularity. In the alternative, we might infer that some are
just careless, with the cost of this carelessness being shifted
to the trust and ultimately to future victims.
Suspicious patterns are often the first clue that something
like this is happening. Such patterns led the judge in the
silica MDL to authorize additional discovery, discovery that
unveiled the depths of dubious claim development patterns and
practices in that litigation. Many of these practices were
borrowed from asbestos litigation. Many of the professionals
involved were also very active in asbestos litigation.
Although trusts at the time had far more data at their
disposal, they either did not discover or were effectively
prevented from investigating these practices to a sufficient
level to fully understand and counter them. Prior to the close
of the silica MDL, witnesses testifying on the FAIR Act and
discussing the act elsewhere told us that there was nothing to
see there, claims of fraud were anecdotal, that everything was
just fine.
The problem from my perspective really doesn't go to
protecting defendants. It goes to protecting the integrity of
the bankruptcy process that established the trust. It goes to
protecting the integrity of the state courts that manage
asbestos tort litigation and ask for this information. And it
goes to whether the compensation frameworks that will be
available should my loved ones or yours need to resort to them
5, 10, or 20 years from now, if they do, heaven forbid, that
they will be adequate.
I believe that greater transparency can lead to a better
system. I respect that others may disagree, but I welcome the
fact that we are having this dialogue, and I thank you for
inviting me.
[The prepared statement of Mr. Brown follows:]
__________
Mr. Bachus. Thank you, Mr. Brown.
Judge Ableman.
TESTIMONY OF THE HONORABLE PEGGY L. ABLEMAN, McCARTER &
ENGLISH, LLP;
Judge Ableman. Thank you, Chairman Bachus and Members of
the Subcommittee, for the opportunity to address you this
afternoon. Prior to my retirement last December, I served for
more than 29 years as a trial judge in the Delaware state court
system. During the last few years of my term on the Delaware
Superior Court, I was solely responsible for the asbestos
litigation docket, which comprised approximately 500 to 600
pending cases filed by plaintiffs from all over the United
States, and even by foreign nationals.
My experience in one particular case gave me a unique
insight into the inherent unfairness associated with a system
that permits plaintiffs' filings of bankruptcy trust claims to
remain secret and undisclosed while a plaintiff is also
actively engaged in tort litigation. What transpired in that
case is illustrative of the problems that occur when
transparency is compromised.
In April 2009, June Montgomery was diagnosed with
mesothelioma. Her son, Brian Montgomery, retained the law
offices of Brent Coon. Brian expressly understood that the
Brent Coon firm would assist his parents in finding counsel in
Florida, where they lived. Ultimately, they hired Florida
attorneys. In November of that year, a lawsuit was filed by
Delaware counsel on behalf of Florida counsel in the Superior
Court in Delaware on behalf of June and Arthur Montgomery
against 22 defendants alleging that June's mesothelioma was
caused by exposure to asbestos from products or conduct of the
named defendants.
Asbestos-related suits in Delaware are governed by a
standing order which sets forth mandatory disclosure
obligations related to bankruptcy trust claims. Despite this
order and specific interrogatories directed to plaintiffs
requesting this information, from the outset of this case and
up until the week before trial, nowhere did plaintiffs identify
exposure through any of the 20 entities to whom bankruptcy
claims were submitted. Instead, plaintiffs claimed that Mrs.
Montgomery was exposed to asbestos solely through the
laundering of her husband's work clothing throughout his
career, as opposed to any work she performed herself with or
around products outside of the home.
The impression garnered from the complaint, the answers to
written discovery, and Mr. Montgomery's sworn testimony in his
deposition was that the bulk of his exposure occurred when he
worked as an electrician during a short period at the
Everglades power plant. Under Florida law, jurors are permitted
to allocate fault to parties not present at trial, including
bankrupt entities.
The defendant in my case filed a motion in advance of trial
requesting that the court order disclosure of all pretrial
settlements, including monies received from bankruptcy trusts.
Counsel for plaintiff emphatically reported to me at the
pretrial conference that no bankruptcy trust submissions had
been made and no monies had been received. Two days before a 2-
week trial in this case was scheduled to begin, plaintiff's
counsel advised that his client had received two bankruptcy
settlements of which he was previously unaware.
This disclosure was directly inconsistent with his
unequivocal representations to the court and to opposing
counsel at the pretrial conference.
By late afternoon the following day, the day before trial
was to begin, counsel for the defendant learned that a total of
20 bankruptcy trust claims had been submitted. Although the
defendant had been led to believe that Mrs. Montgomery's
exposure was solely the result of take-home fibers on her
husband's clothing, at this late point in the litigation it
became obvious that one or more of plaintiff's attorneys had
been claiming exposure through Mrs. Montgomery's own
employment. That is, she worked with and around these products
herself.
In essence, the representations to the bankruptcy trust
painted a much broader picture of exposure to asbestos than
either plaintiff or plaintiff's attorneys had acknowledged
during the entire course of the litigation in Delaware.
On the first day of the scheduled trial, with the jury
already selected and waiting to serve, the court learned of
plaintiff's failure to disclose the trust submissions. This
circumstance dramatically affected the entire litigation,
including a lengthy discovery process and trial preparation
which had been conducted without knowledge of the true facts,
not to mention the waste of the court's time and resources.
In my opinion, transparency of the bankruptcy filings goes
to the very core of what this litigation is about. The crux of
the Montgomery case, as in virtually all asbestos litigation,
was a determination of responsibility for Mrs. Montgomery's
exposure. Where 20 manufacturers of asbestos and asbestos-
containing products are removed from the equation, a true
determination of fault cannot occur.
In the final analysis, there can be no real justice or
fairness if the law imposes any obstacles to ascertaining and
determining the complete truth. From my perspective as a judge,
it is not simply the sheer waste of resources that occurs when
one conducts discovery or trials without knowledge of all the
facts. What is most significant is the fact that the very
foundation and integrity of the judicial process is compromised
by the withholding of information that is critical to the
ultimate goal of all litigation, a search for and discovery of
the truth.
[The prepared statement of Judge Ableman follows:]
__________
Mr. Bachus. Thank you.
Mr. Inselbuch.
TESTIMONY OF ELIHU INSELBUCH, MEMBER,
CAPLIN & DRYSDALE, CHARTERED
Mr. Inselbuch. Thank you, Mr. Chairman. I would like to
thank the Subcommittee for the opportunity to testify here
today. My name is Elihu Inselbuch. I'm a member of the firm of
Caplin and Drysdale. I was first retained by the Asbestos
Creditors Committee in the Manville reorganization in 1985, and
since then I have been active in the asbestos bankruptcies and
in the formation of these trusts and in the operation of these
trusts. I have some experience with how they do operate.
Mr. Scarcella says that if this bill is enacted it will
cost nothing, relatively speaking, and be quite easy for the
trusts to comply with its provisions. I was in Wilmington
yesterday and I met with the senior managers of the Delaware
claims processing facility, which actually does the trust
processing for five or six of the largest bankruptcy trusts,
asbestos trusts. And it ain't as simple as Mr. Scarcella would
suggest.
This bill would require that each claim be looked at and a
narrative be prepared describing who the claimant is, his
exposure history, and the basis for payment. But even if Mr.
Scarcella is correct and it took no more than 5 minutes for the
trusts to do this work, and a reviewer could do 80 a day, that
is about equal to the number of claims that these trusts get
every day. So you would need one full-time employee working all
the time just to respond to Part A of this provision.
Now, the Chairman has told us that every penny counts, and
I couldn't agree more. If it took 10 minutes, you would need
two employees to do that. Section B of the proposed bill would
require that in response to a request, a trust would have to
provide the same information for all the claims basically it
has on file.
Well, take any one of the current trusts. They have 400,000
claims on file. If someone could do 80 a day, that would
require 5,000 person days. If there were 250 workdays in a
year, that would take 20 years for one person to do. If you
wanted to do it in a year to comply with the statute, you would
have to hire 20 people. So this is not cost free, even on Mr.
Scarcella's assumption that it will take only minutes to get it
done.
And what will this do with the trust? It will create delay.
At the very least, it will create delay. What does delay
matter? Most of us think about delay in terms of interest
rates, and interest rates are pretty low today. But delay
really matters to someone who is sick and dying from
mesothelioma.
We ran a test some years ago. We made a proposal that we
would pay a claimant $50 now and $50 3 years from now, or
rather $70 now. And overwhelmingly, the sick and dying people
who would like to organize their lives would take the $70. So
every day of delay is a weapon that the defendants have to
drive the settlement prices down.
Why do we have this legislation? What is transparency
seeking to find? In any court that I know of in the United
States, all the defendant has to do is serve a subpoena on the
plaintiff, and the plaintiff is responsible to produce all the
material that the plaintiff filed with the trusts in response
to that subpoena.
Are there lawyers who may misbehave? I'm sure there are.
I'm sure there are some. In 50 years of practice, I haven't
seen many, but I am sure there are some that misbehave either
as plaintiffs or defendants.
But Judge Ableman will catch them. That is the proof that
when abuse occurs, the court system, the state court system
around the country is perfectly able to find the abuse.
Fraud? Everybody talks about fraud and abuse. This
Committee, this Committee asked the GAO to investigate whether
or not there was fraud in the trust system, and the GAO did a
long study, and they did an investigation, and they filed a
report, and they said they couldn't find any fraud. The Wall
Street Journal found discrepancies in something less than four-
tenths of a percent of the filings at the Manville trust over a
20- or 30-year period. This is not proof of fraud.
Transparency. It strikes me as outrageous that this
industry wants to talk about transparency. This is an industry
that not only hid the facts of asbestos exposure but positively
concealed it for 40 years, so that we now have hundreds of
thousands of people dying from exposure to asbestos, and they
want to talk about trust transparency. Who is the sheep? Who is
the wolf?
Thank you.
[The prepared statement of Mr. Inselbuch follows:]
__________
Mr. Bachus. Thank you.
Mr. Scarcella.
TESTIMONY OF MARC SCARCELLA, BATES WHITE, LLC
Mr. Scarcella. Chairman Bachus, Members of the
Subcommittee, thank you for holding today's hearing on the FACT
Act and allowing me the opportunity to provide testimony in
support of this bipartisan, commonsense legislation.
I also want to thank Mr. Inselbuch for prompting me to
change my oral testimony at the last moment. But I think it's
important to address some of the concerns Mr. Inselbuch raised.
When I spoke in May of 2012 on the FACT Act, I intended
that the quarterly reporting requirements of the FACT Act to
provide data disclosing who has filed a claim and under what
allegations of exposure they are seeking payment, and I made
comments of how little time and effort it would take to produce
this information, I believe Mr. Inselbuch has misunderstood me.
I did not mean to intend that it would take minutes to produce
per claim. I meant it would take minutes to produce for all
claims.
There is a simple fact that people need to understand about
discovery on trust data. As a former statistician of the
Manville Asbestos Trust, I can tell you that this data is
available. Asbestos facilities in trust receive data, process
data, and pay claims through electronic databases and
processing systems. These databases allow pertinent information
to be parsed out about each claim.
It is very easy for anybody with a general competency on
database and programming skill that all these trust and claim
facilities have at their disposal to write a simple code that
allows them to generate a disclosure of every claimant, when
they file the claim, and their allegations of exposure
asserting payment for their claims, without disclosing any
personal information, private medical information, home
addresses, or any other privacy concerns that Mr. Inselbuch or
the plaintiff attorneys have shared in the past. This is a very
simple procedure.
So when I say it would take minutes and be a minimal cost
to produce the quarterly reporting requirements of the FACT
Act, I mean for all claims, not just one claim per time. And
this is based on my experience as not only the statistician of
the Manville trust, but over 7 years of experience working in
bankruptcy reorganizations for legal representatives of
asbestos claimants, as well as with the trust once they were
confirmed.
I consulted on issues of data management and report
generation, and I know how these data systems work. That is why
I am confident in my previous statements, and I am very
confident that the requirements proposed by the FACT Act will
not bear a huge cost burden on the trust, if any at all. In
fact, the recent markup of the FACT Act since I last spoke on
it in May 2012 allows provisions for the trust and their
facilities to charge third parties who are requesting
information reasonable fees in order for the trust to concur
and comply with those requests.
This is a cost shift that will help relieve burden on the
trust and help preserve money in the funds for victims.
Now, I have gotten a little bit off script because I felt
it was necessary to address some of those issues, but I just
want to talk about a few other items that I think are also
important to know.
Mr. Inselbuch spoke in his oral testimony, as well as his
written testimony, about this idea that in order to respond to
the reporting requirements of the FACT Act, this is going to
take so much resources away from the trust and their facilities
that claimants are going to experience a delay in claim
payments.
This is a myth. This has been spoken about for quite some
time, dating back to last year's hearing in May of 2012. When I
was the statistician for the Manville trust, I was responsible
for handling data requests both internally and externally. My
work and the items that I had to produce both internally and
externally had no bearing on the professionals employed by the
trust in the facility who were responsible for reviewing,
processing, and paying claims. So any reporting requirements
that I would have had to have dealt with in no way would delay
the processing and payment of claims to the people who deserve
it most.
Ultimately, one of the issues I wanted to get across here
today is that transparency helps trusts. It is difficult to
detect fraud or inconsistent claiming when you operate in a
vacuum, as most trusts do. They do not share information with
each other. Trust transparency will allow trusts to actually
have auto procedures that can compare claim allegations made
across multiple trusts. This will cut down on inconsistent
claiming, and that will preserve money for the victims who
deserve it the most.
Thank you very much.
[The prepared statement of Mr. Scarcella follows:]
ATTACHMENT
__________
Mr. Bachus. Thank you.
Mr. Cohen, did you want to give an opening statement? I
will accord you that opportunity, if you would like.
Mr. Cohen. Thank you, Mr. Chairman.
Mr. Bachus. I will tell you that I served with Bruce Vento.
He died. He and I were on the Financial Services Committee
around 2000. He was suffering from mesothelioma at the time.
She is here. She is one of three victims.
Mr. Cohen. I see. Thank you.
This is a very personal issue for me because Warren Zevon
was one of my closest of friends, and he was a great singer-
songwriter and, unfortunately, a victim of mesothelioma, dying
in the year 2003. Some decades before he had exposure to
asbestos, and exactly how it happened, we are not sure. So I
come certainly with a feeling that the victims of asbestos need
a voice.
The FACT Act at first blush has certain characteristics
that make you think it is reasonable. Yet, I learned about the
FACT Act during a previous hearing that we had in the previous
Congress and the markup of a substantially similar bill in this
Congress, the more readily you come to conclude that this
legislation may be a solution in search of a problem.
More problematically, it could end up hurting asbestos
victims by denying them full compensation for the harms that
they have suffered as a result of the product that many
asbestos manufacturers sold for decades, knowing that they were
dangerous.
H.R. 982 would impose a number of new reporting and other
information-sharing requirements on trusts that have been
established under Section 524 of the bankruptcy code, trusts
designed to compensate current and future victims of asbestos
exposure by ensuring that those asbestos manufacturers and
other related defendants that have filed for bankruptcy cannot
escape the responsibility for the harm they have caused.
The bill would require those trusts to file quarterly
reports describing each demand for payment per claimant,
including the claimant's name and exposure history as part of
its public docket. It would also require the trusts to provide
information regarding payments and demands for payments to any
party in an asbestos exposure-related civil action upon the
parties' written request.
Under this bill, the asbestos defendants can reorganize
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 responsibility
to all beneficiaries to ensure that only proper claims are paid
in light of the universe of the current and anticipated future
claimants.
While not perfect, the trusts have worked reasonably well,
and H.R. 982's proponents assert that additional reporting and
information-sharing requirements be put on these trusts in
order to prevent fraud and eliminate risk to such victims of
being overcompensated. Proponents claim that there could be
double dipping.
In weighing this assertion, the most objective source I
could find was a study of 524(g) trusts was conducted by the
Government Accountability Office at the request of the former
Chairman of this Committee, the Honorable Lamar Smith. The GAO
was not able to find any instances of fraud. Moreover, the GAO
found that trusts take appropriate steps to ensure that
fraudulent claims are not paid.
But even accepting that fraud by asbestos victims could be
a real problem with respect to asbestos trusts, I fear that
H.R. 982's additional requirements of the trusts will raise
their administrative costs considerably as well. Even with the
provision that a party requesting information could be required
to pay a reasonable cost of a trust for complying, the cost
burden could not be relieved.
For instance, the bill does not define what reasonable is
or specify who would make such determinations, opening the door
to litigation over that issue and others. Any money used to pay
the cost means less money to compensate victims.
In light of this risk and others, I would like to know from
the proponents and hope they did explain why defendants who are
concerned about potential fraud by asbestos victims cannot
simply seek trust payment information, easing procedures around
our existing discovery rules. I believe it has been testified
by the Judge that she had seen one case of fraud, but she had
seen hundreds and hundreds and hundreds of cases, and I presume
that in most of those, there is no fraud. One case does not
make all 600 bad.
Defendants can already obtain the information they want
without undermining compensation for the others, and a
reporting requirement raises privacy concerns. While I
recognize 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 the name and the
exposure history. Once out, that information can be used for
other purposes, by potential employers, insurance companies,
lenders, and even those who may not seek to harm asbestos
victims who may use the information without the victim's
permission or knowledge.
For these reasons, I remain opposed to the FACT Act and
urge my colleagues to oppose this bill.
I would like to take a moment to say that at the last
hearing we had on this bill, Mr. Chairman, I made an
unfortunate statement concerning an attorney who had tried to
contact my friend, Warren Zevon. It was a passionate statement
because of the friendship that I had for him, but it certainly
should not have been seen as certain activists from the Chamber
of Commerce crowd and others took it, and they have republished
that statement in tweets.
To this day, about every third day, I get some tweet, and I
sometimes look at where it comes from, and it comes from India,
or it comes from Indonesia, or it comes from Hushpuckenny. Most
of them are outside the country.
I wish they would stop. It is long enough that it makes the
Chamber look really ridiculous and simplistic, and it looks
like they take advantage of a simple statement that you made a
mistake on. It doesn't reflect my feeling for trial lawyers,
and it doesn't need to be repeated with Warren Zevon's name
attached to it. So I would ask the Chamber to clean up their
act, because they are obviously behind it.
With that, I yield back the balance of my time.
Mr. Bachus. Thank you.
At this time, we will proceed under the 5-minute rule with
questions for the witnesses.
Mr. Inselbuch, you were saying that GAO found no fraud,
basically?
Mr. Inselbuch. That's what they said.
Mr. Bachus. How do you account for the Wall Street Journal
that put two reporters on an investigation for four or 5
months, and they came up with 2,700 people who claimed to be
injured by asbestos injuries while working in shipbuilding
mainly, or chemical plants, but their ages, they were 12 years
of age or under?
Mr. Inselbuch. Well, first of all, the Wall Street Journal
itself didn't say that any of these filings were fraudulent.
They found what they said were discrepancies, and they found
them, out of 850,000 claim files, they found them in such a
small number that it is almost not measurable.
Mr. Bachus. Well, of course, I would say 2,700 claims by
people that were 12 years or under----
Mr. Inselbuch. That just could mean that the individual
working at the Manville trust keyed in the wrong number in the
computer.
Mr. Bachus. That is incredibly sloppy, isn't it? You worked
for that trust.
Mr. Inselbuch. Well, it happened, Mr. Chairman, in less
than four-tenths of a percent of the cases.
Mr. Bachus. Well, okay. I did hear that. That means just 1
out of every 200.
Mr. Inselbuch. I understand that.
Mr. Bachus. Okay. Now, let's take that, 1 out of every 200,
and that is your testimony, of course. I am sure that Mr.
Scarcella would say----
Mr. Inselbuch. Those are the Wall Street Journal's numbers.
Mr. Bachus. But let's take yours, 1 out of every 200. Let
me just say I agree with you. That is one every two-and-a-half
days, because you said 80 a day.
Mr. Inselbuch. No. That is 80 a day to do the report here.
Mr. Bachus. But you said that 80 claims come in a day.
Mr. Inselbuch. That is right.
Mr. Bachus. Okay. So----
Mr. Inselbuch. Eighty come in a day. Yes, sir.
Mr. Bachus. Okay, 80 come in a day. So two-and-a-half days,
200 come in. One of those is fraudulent.
Mr. Inselbuch. No, it is not fraudulent. There may be
something wrong with it, but that doesn't mean it is
fraudulent.
Mr. Bachus. Well, okay, there is something wrong with it.
Mr. Inselbuch. It may well be picked up by the trust.
Mr. Bachus. It may be that the claimant claims to be under
12 years of age, and we won't know why. But let's say that is
what it does say.
Mr. Inselbuch. Well, we can hypothesize what we want.
Mr. Bachus. Well, let's just say they file a claim and
their birthdate says they are 12 or under. To me, that is
pretty serious. And then your average claim for mesothelioma is
$17,500, just in one trust. So if every 2 days you pay out a
claim for $17,500, over a year that is $2 million. Now, this is
using your figures.
Mr. Inselbuch. No. You are using your assumption that there
was something wrong with the filing.
Mr. Bachus. Well, I am using your testimony that 1 out of
every 200 claims----
Mr. Inselbuch. There was a discrepancy.
Mr. Bachus. Let's just call it a discrepancy.
Mr. Inselbuch. But a discrepancy----
Mr. Bachus. They actually found cases where a person never
existed.
Mr. Inselbuch. Yes, there was one of those.
Mr. Bachus. But these are just two reporters.
Mr. Inselbuch. And how would this act fix that? I don't see
how it would make any difference.
Mr. Bachus. They would report. It would have them go over
and review that and report.
Mr. Inselbuch. But it wouldn't say what year they were
born.
Mr. Bachus. You had 300 people just on one trust that
claimed they had mesothelioma when actually, publicly, what
they had was lung cancer. Now, that is a difference of $12,000.
Would you admit----
Mr. Inselbuch. Again, Mr. Chairman, even the Wall Street
Journal didn't assume that these were errors made deliberately
by the claimant.
Mr. Bachus. I am not saying that----
Mr. Inselbuch. All of these could have been errors made by
the Manville trust.
Mr. Bachus. Well, yes. But let me say this, let's just call
them errors; okay?
Mr. Inselbuch. All right.
Mr. Bachus. Payments were made based on errors. Now, that
is money, whether it is based on an error, whether it is based
on a clerical mistake----
Mr. Inselbuch. Yes.
Mr. Bachus [continuing]. Whether it is based on fraud,
you're talking about $17,500 that----
Mr. Inselbuch. Then you should have this bill expanded so
that you will require every bit of data that is filed with the
trust to be supplied somewhere in a public record.
Mr. Bachus. Well, you know, let me ask you this. You also
say, wait, they can get it with a subpoena anyway.
Mr. Inselbuch. Yes, sir.
Mr. Bachus. They don't even need this bill.
Mr. Inselbuch. That is correct.
Mr. Bachus. Why would you be arguing against a bill that
they already have every legal right to get the information?
Mr. Inselbuch. Because the burden is being placed on the
trust to do something. The second part of this bill----
Mr. Bachus. Well, the burden----
Mr. Inselbuch [continuing]. Provides a reference library to
these defendants in the tort system. They call it transparency.
They don't provide any transparency. Why don't you require the
defendants in the tort system to divulge what they have paid to
settle other cases, or where their products are when they were
there when they were killing people?
Mr. Bachus. Well, you know, you argued----
Mr. Inselbuch. If you want transparency, have transparency.
Mr. Bachus. Let me say this. You argued, hey, these folks,
the companies, were guilty of fraud. But that is----
Mr. Inselbuch. No, they were not guilty of fraud. They were
guilty of murder.
Mr. Bachus. Murder. Okay. Genocide, okay? Let's call it
genocide. Now, does that mean that people that don't have a
right to recovery have a right to recovery?
Mr. Inselbuch. No, sir.
Mr. Bachus. So two wrongs don't make a right, do they?
Mr. Inselbuch. This was not two wrongs.
Mr. Bachus. So your argument really doesn't--it is one of
those two wrongs make a right.
Mr. Inselbuch. Not to me, sir.
Mr. Bachus. Oh. You mean you think because a company that
is no longer in existence, bankrupt--and let me say this, not
all of them committed fraud, because I can tell you a company
in Birmingham only built two liberty ships in 1943 and in 1985.
Because they built two liberty ships for the government and put
asbestos in it, they went bankrupt and put 120 people out of
business. So let's not stereotype all these companies.
Mr. Inselbuch. I am sorry, but how many people in the holds
of those ships were exposed to asbestos and died?
Mr. Bachus. Every one of them. And would you blame the
company when the U.S. Government told them to build a ship, and
in 1943 no one knew that it was harmful? Would you blame that
company?
Mr. Inselbuch. Everybody knew it was harmful in the
industry.
Mr. Bachus. In 1943?
Mr. Inselbuch. Absolutely. They had meetings in the 1930's
in Saranac Lake where they discussed how to conceal it.
Mr. Bachus. Why did the U.S. Government allow ships to be
built? That is a question----
Mr. Inselbuch. That is a very good question, and it is a
very good question why the United States Government hasn't
stepped up to its own responsibility to pay these bills.
Mr. Bachus. Well, let me say this.
Mr. Inselbuch. But the United States Government argued
sovereign immunity.
Mr. Bachus. Okay. You know, I am interested in that. Let me
say this. I am a former member of the American Trial Lawyers
Association. I had the largest jury verdict in the state of
Georgia in a wrongful death case. So I am not one that
stereotypes plaintiffs' lawyers, defense lawyers, or companies.
They are not all alike.
But I would love to see some of that testimony, and I don't
doubt it. But this is a first, the first time I have heard it.
Mr. Inselbuch. I would come and testify for that
legislation.
Mr. Bachus. I really would like to explore that with you,
because just take Bruce Vento. I have never met a nicer
gentleman in my life, and it is something that we need to know.
The Wall Street Journal needs to do an article and go back. I
applaud them. They found something that apparently the GAO
couldn't find, just two reporters. It is kind of amazing.
Mr. Cohen.
Mr. Cohen. Thank you, Mr. Chair.
I have been pleased with our staff, but I found some
troubling numbers that I saw today, Mr. Chairman. Their
statistics suggest this woman graduated law school in 1975. I
think that is a mistake. How did they come up with that year?
I mean, were you born in 1975, Judge?
Judge Ableman. I love you. You could be my friend for life.
[Laughter.]
Mr. Bachus. Well, I will actually tell you that as I read
how long she had been on the bench, it made no sense
whatsoever.
Judge Ableman. I have great genes.
Mr. Bachus. But I have a wife that everybody keeps saying
she had to be somebody I married in old age, and she and I are
the same age. So we sometimes----
Mr. Cohen. Well, I will excuse the staff, but it did seem
uncharacteristically errant of them.
Let me ask you, did you know Alan Lubell at Emory law
School?
Judge Ableman. Pardon me?
Mr. Cohen. Alan Lubell?
Judge Ableman. Yes.
Mr. Cohen. Well, then you did go to Emory that year. That
is good.
Judge Ableman. I swear, I should have brought my diploma.
Mr. Cohen. Yes. I will ask him. I will check you out.
Let me ask you about this. You said you had all these
cases, and I missed your testimony. I apologize for that. But
there was one particularly bad case. But in most of the cases,
were most of the cases, in your opinion, legitimate cases?
Judge Ableman. Well, I don't know, because most of the
cases don't end up going to trial and to verdict. So I don't
know what goes on in the settlement process, and I don't know
what information is or is not available to all of the litigants
while the discovery process is going on and while the
settlement negotiations are going on.
So my concern about the lack of transparency is that I
think it is anathema to any judge not to have a fair playing
field and not to have justice depend upon the full truth. The
problem is that there are missing parts that will never be
detected if the cases never get to trial.
This one happened to be ready for trial, and it just so
happened that we discovered the inequities and the dishonesty
that occurred. I could have just as easily tried that case
without ever having discovered it.
But most of the cases, I don't even get to that point. So I
don't have any control over what is going on.
Mr. Cohen. But you don't have any knowledge of fraud in
those other cases?
Judge Ableman. No, but I think that there is an incentive,
when there is nobody there to catch you, there is an incentive
to do things like delaying claims to the trust, to be able to
make a case a little bit different from what it really is. I am
not sure that that does not occur more often than not. I hate
to say it, but I don't feel real comfortable saying it was a
one-time situation.
Mr. Cohen. Are there parts of this bill that you think are
not necessary and are bad?
Judge Ableman. No. I think the bill is very fair, and I
don't think----
Mr. Cohen. You endorse it 100 percent?
Judge Ableman. Well, if you changed it, I would be willing
to let you know what my opinion is too. I mean, I am sure there
could be modifications to it.
I think that the confidentiality issue is a little bit of a
red herring because there is no confidentiality in any of these
tort cases. I mean, once you file a lawsuit, there is no
confidentiality. So if these same defendants were not in
bankruptcy, they would be sued in a court of law and they would
not be entitled, the plaintiffs would not be entitled to----
Mr. Cohen. Mr. Inselbuch, let me ask you this. I thought
your facts were wrong too, because you were practicing law in
the 1950's, which seems hard to comprehend as well. That was my
other concern. But where would you----
Mr. Inselbuch. I am older than I look.
Mr. Cohen. Obviously, obviously. You have had quite a
spectacular career.
Where would you suggest to the Honorable Judge that this
bill should be changed, or scuttled?
Mr. Inselbuch. For starters, I would scrap the whole bill
because it seeks information that, to the extent it is
legitimately useful to defendants, they can get anyway. It
creates burdens, notwithstanding what Mr. Scarcella has told
the Committee. I spoke to the people who would have to do it,
and they told me how difficult it might be, that there is no
button to push and no program to do. You are creating burdens.
You are creating costs. You are creating delay.
The justification for it is what Judge Ableman and others
would call transparency. On the other hand, there is no
transparency that comes from the other side.
The trust process is the settlement process. If these trust
forebears had been still in the tort system and they settled a
case with a plaintiff, the other defendants would not get that
information. They would not get any information that was
exchanged in the settlement process. Nowadays, the same
defendants won't exchange any of their settlement information
with anybody else, nor will they voluntarily tell anybody where
their products were.
To the extent that the court may not have the true picture,
it may not be getting the true picture from either side because
in our tort system it is the burden of the plaintiff to get the
facts from the defendant, and it is the burden of the defendant
to get the facts from the plaintiff, and that is how we have an
adversarial system that gets the materials to the court.
This would like to change that adversary system. This
would, in effect, change the way discovery would be done by
defendants in the tort system in 50 states of the United
States. I don't see any need for it or any purpose to it.
Mr. Cohen. Thank you. I yield back the balance of my time.
Mr. Farenthold [presiding]. Thank you, Mr. Cohen. I will
now yield myself 5 minutes for questioning.
Mr. Inselbuch, I am an attorney as well, and I am overall
troubled by your general assertion that getting to the truth
and doing what is right is too burdensome and too expensive. I
understand the need for getting the settlement money to the
victims in as reasonably a prompt fashion as possible, but the
trusts also have a fiduciary duty, do they not, to as yet
undiscovered victims to not pay out fraudulent claims?
Mr. Inselbuch. Absolutely, and they do a pretty good job of
that. I observe how those trusts operate. Indeed, the trusts
have paid less than 50 percent of the claims that have been
filed with them up to now. This is not a revolving door for
claimants. I have seen how these trusts have done audits, how
they have uncovered discrepancies, far more interesting
discrepancies than the Wall Street Journal found, how they
investigated those, how they audited the law firms that were
involved in those discrepancies, and I don't see any need for a
filing place or for this Congress to interfere in what is a
working system that is working very efficiently and very
inexpensively, as opposed to the tort system.
Mr. Farenthold. Having filed this bill, I am going to
disagree that it is working. One of the things we look at
consistently is making information available. Again, I am a
strong believer in the truth will set you free, and I was
concerned--and I guess Mr. Scarcella addressed the fact of how
burdensome it would be to create these reports. I can't
believe, certainly on an ongoing basis--I assume these things
are filed electronically. You just have the lawyers requesting
the claim put in a summary of the case, and you review it.
To me it seems like it could all be done, and Mr. Scarcella
agrees with me, this is all just a data function that for the
most part is already in place and wouldn't be that burdensome.
I just want to make sure the record is clear on that. Is that
not correct, Mr. Scarcella?
Mr. Scarcella. Yes. I think the important distinction here
is to understand that the picture that is being painted by Mr.
Inselbuch is this idea that attorneys for the trust and
paralegals and claim reviewers are going to have to sit in
rooms with stacks of documents redacting information before it
is turned over, and that is why it would take so long.
Mr. Farenthold. They are not the Federal Government. They
actually have computers that work?
Mr. Scarcella. Yes, it is not that way. The professionals
he speaks about that he has met with recently at the claims
processing facilities, I used to work with these people as an
outside consultant, and I used to have to analyze their data
for doing future claim projections, which is one of the
backbones of a bankruptcy trust and how they distribute their
money, both currently and in the future. And in my experience,
whenever I needed to request data, far more extensive data than
what the FACT Act is proposing here, I was able to get it in
virtually no time at all. It took no time, maybe a day lag for
them to produce to me a data set far more robust than what the
FACT Act is seeking here, so I could do my analysis to try to
help the trust figure out how they should pay claims in the
future.
Mr. Farenthold. We could probably spend the rest of the
afternoon going into the details of this, but I do want to talk
about the bill in particular. I want to ask Judge Ableman, as
we produced this bill, do you think it strikes a fair balance
between addressing the needs of those who suffer from asbestos-
related diseases now and need to get their claims paid promptly
and the need for protecting those in the future?
Judge Ableman. I absolutely do think that it does. I don't
see how you can argue against openness and transparency,
because that just makes the judicial process what it is
supposed to be, which is a fair process where both sides are
playing on a level playing field. I think the bill protects the
rights of the victims who have succumbed to this dreadful
disease, but I also think that it probably provides more
protection in terms of confidentiality of their records than
the legal system is able to do.
Mr. Farenthold. Great. I want to ask Professor Brown, again
just setting up the record for this, could you expand on your
testimony on the FACT Act? Is it an appropriate exercise of
congressional authority given that the Section 524(g) trusts
are authorized by the bankruptcy code but authorized under
state law?
Mr. Brown. Of course. I find it kind of interesting that
that is even a question. In the course of my research last
year, one of the lead firms in New York came in and argued that
the state courts should not be demanding this information in
discovery and otherwise because it was a violation of the
sovereignty--excuse me--the supremacy clause.
But when we look at it from just a matter of the bankruptcy
power, any conception of the bankruptcy power, even the
narrowest conception, is a restructuring of the debtor's
affairs with its creditors, and any act related to that falls
under the bankruptcy clause. I don't think that is even
seriously in question here.
Mr. Farenthold. All right. I just wanted to make sure we
got that on the record. Thank you, Professor Brown.
Thank you to the rest of our panel.
We will now go to the gentleman from Georgia, Mr. Johnson,
for 5 minutes.
Mr. Johnson. Thank you.
Mr. Cohen. If I could interrupt for 1 minute, I would like
to ask for unanimous consent to introduce letters from the
trust of future claimants' representatives opposing this for
the record, and also I think Mr. Conyers' opening statement for
the record.
Mr. Farenthold. Without objection, so ordered.
[The information referred to follows:]
__________
Prepared Statement of the Honorable John Conyers, Jr., a Representative
in Congress from the State of Michigan, and Ranking Member, Committee
on the Judiciary
H.R. 982, the Furthering Asbestos Claim Transparency Act, or FACT
Act, burdens asbestos trusts while giving asbestos defendants new
rights and advantages to be used against asbestos victims in state
court.
This is particularly troubling given that asbestos defendants come
to this issue with unclean hands. For instance, there is the well-
documented harm caused by asbestos--including a form of cancer known as
mesothelioma, as well as a debilitating clogging and scarring of the
lungs known as asbestosis--and the history of asbestos manufacturers in
concealing the dangers of their product from the public for many years.
And yet these very same manufacturers now want Congress to help
them by passing H.R. 982.
This legislation is extremely problematic for several reasons.
To begin with, the bill's reporting and disclosure requirements are
an assault against asbestos victims' privacy interests.
While the bill prohibits disclosure of an asbestos claimant's
confidential medical records and full Social Security number, it also
mandates that the trusts publically report the claimant's name and
exposure history, as well as the basis of any payment that the trust
made to the claimant.
Given the fact that all of this information would potentially be
available on the internet, just imagine what insurers, potential
employers, prospective lenders, and data collectors could do with this
private information.
Essentially, this bill would allow asbestos victims to be re-
victimized by exposing their health information to the public.
Another problem with the bill is that it is fundamentally
inequitable.
This legislation demands that the trusts make these disclosures,
but makes no comparable demands on the very companies that injured
millions of Americans and concealed the dangers of their product for
many years.
The bill essentially shifts some of the costs of discovery away
from these defendants to asbestos bankruptcy trusts, which in turn
diminishes the amount of funding available to compensate asbestos
victims. In doing so, it provides an end-run by asbestos defendants
around the discovery process available under non-bankruptcy law.
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 shed their massive asbestos tort liability and re-enter the business
community on a competitive basis for the benefit of their creditors and
those who they injured.
These trusts, in turn, 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. 982 does nothing to improve the trusts or advance the
interests of asbestos victims.
And, finally, there is absolutely no evidence of endemic fraud
warranting such an invasive measure as H.R. 982.
That is not just my opinion. The Government Accountability Office
reported that there is no empirical evidence of such fraud with respect
to the trusts' claims processing system.
Sure, the Majority's witnesses will claim today that the system is
rife with fraud based on isolated instances and anecdotes, 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.
These are just a few of the concerns that I have with this
legislation. And I am not alone in having serious misgivings about this
measure. With respect to a nearly identical bill considered in the last
Congress, the following entities expressed strong opposition to the
measure:
the Asbestos Disease Awareness Organization, the
Environmental Working Group,
the Center for Justice and Democracy,
and various legal representatives for future asbestos
personal injury claimants with respect to asbestos bankruptcy
trusts.
I thank our witnesses for being here and hope that they can
adequately address my concerns.
__________
Mr. Cohen. Thank you.
Mr. Farenthold. Thank you, Hank.
Mr. Johnson. Yes, thank you.
Ms. Ableman, are you appearing today in your personal
capacity?
Judge Ableman. I am appearing in my capacity as a judge for
29 years and----
Mr. Johnson. And also a lawyer with a 400-lawyer law firm.
Judge Ableman. I am, but I don't--I just started there, and
they----
Mr. Johnson. They do a lot of----
Judge Ableman [continuing]. Marching orders.
Mr. Johnson. They do a lot of asbestos litigation for that
firm, do they not?
Judge Ableman. They do.
Mr. Johnson. McCarter and English is the name?
Judge Ableman. Yes.
Mr. Johnson. In fact, product liability is the largest
practice area for that firm; correct?
Judge Ableman. I think it--I am not really sure, but I
think it may be. I thought it was bankruptcy.
Mr. Johnson. But it is a pretty large part, would you say?
Judge Ableman. Yes.
Mr. Johnson. And, of course, asbestos and other toxic tort
litigation comprises the bulk of the product liability
litigation that the firm handles; is that correct?
Judge Ableman. Yes.
Mr. Johnson. Now, your firm, does it currently represent
the company Foster and Wheeler?
Judge Ableman. No.
Mr. Johnson. Or any of its subsidiaries or associates?
Judge Ableman. No. I don't believe so, no.
Mr. Johnson. Are you on the clock right now for your
testimony?
Judge Ableman. No.
Mr. Johnson. You are not making any money right now?
Judge Ableman. No.
Mr. Bachus. I think we are all on the clock up here. We are
getting paid.
Mr. Johnson. We certainly are, but we are trying to get to
the truth. I just want to make sure that our witnesses are
credible in that regard as well, that they don't have a motive
to testify in a biased way so as to create more business for
the law firm.
But let me ask you, Mr. Scarcella, your firm----
Mr. Bachus. A point of personal privilege.
Mr. Johnson. If it doesn't apply to my time, if we can stop
that.
Mr. Bachus. We will suspend the time.
Mr. Farenthold. We will suspend the time.
Mr. Bachus. I think it is the customary rules of the House
not to impugn the witness' character.
Judge Ableman. May I respond?
Mr. Johnson. Well, my response would be that this witness
is appearing as an expert, and I think it is fair game to ask--
--
Mr. Bachus. Well, all our witnesses appear as experts, and
all of them----
Mr. Johnson. And all of them are subject to the same
questioning to determine whether or not they have an interest
or bias in the case.
Mr. Bachus. Well, let me say this. I will close this by
saying that Mr. Inselbuch also is employed, but I would never--
--
Mr. Johnson. And I was going to ask you----
Mr. Bachus. I would never impugn his character or his
interests.
Mr. Johnson. He is employed. He works on a----
Mr. Bachus. I think he testified to the best of his
ability, and that all of the witnesses testified truthfully.
Mr. Johnson. He works on a contingent fee basis, but the
others work on probably an hourly basis. Certainly, one of your
colleagues on the other side of the aisle is entitled--Mr.
Inselbuch has been subjected to a thorough and sifting cross-
examination thus far, and he still has four people that he has
to go through.
Mr. Bachus. I didn't impugn his character, his
truthfulness, or his veracity.
Mr. Johnson. Well, it was a scathing type of cross-
examination, I think, and I don't want to do that to the
Honorable Judge Ableman, but I am just asking some questions to
get at whether or not I can believe her testimony or not, or
what weight I should give to it.
Mr. Farenthold. We did stop the clock. We will go on. I
would like to remind the Members that we should certainly be
courteous to our witnesses who are appearing, while still
looking for the truth.
We will continue your time. Thank you.
Mr. Johnson. Thank you.
Mr. Farenthold. And I believe the judge would also--did you
ask to respond? We won't start the clock.
Judge Ableman. I want to just say simply that I was asked
to do this before I even accepted employment by McCarter and
English.
Mr. Johnson. You were asked by the Republicans to do this?
Judge Ableman. I was--someone got hold of the transcript
from my hearing after the debacle in that case.
Mr. Farenthold. Okay, we will go ahead and start the clock
back up now.
Mr. Johnson. Okay. All right. Now we are here talking about
the FACT Act. Would any of your firm's clients benefit from the
passage of that act?
Judge Ableman. Well, I think everyone would benefit from it
because it means that the judicial process is going to be more
fair.
Mr. Johnson. Everyone would not benefit from a financial
aspect of it, though; right?
Judge Ableman. I think everyone benefits from having a fair
and impartial judicial decision-making process.
Mr. Johnson. It should be fair and impartial, there is no
doubt.
Judge Ableman. Everyone benefits from the truth.
Mr. Johnson. This legislation, though, would impose, as we
have heard from Mr. Inselbuch, it would impose hardship on
claimants, people who have been injured, due to no fault of
their own, as a result of unhealthy and unsafe products.
Mr. Inselbuch, you mentioned the fact that--and, by the
way, you are plaintiffs' lawyer; correct?
Mr. Inselbuch. Am I an attorney? Yes, I am an attorney.
Mr. Johnson. You are plaintiffs' lawyer?
Mr. Inselbuch. No, I am not.
Mr. Johnson. You are not? You represent some----
Mr. Inselbuch. I represent many of the committees in the
bankruptcies, the committees that act for the plaintiffs that
are injured. I represent trustee advisory committees that
advise the trustees in the bankruptcy. But I don't do the tort
cases, and I am paid by the hour, not on a contingency fee
basis.
Mr. Johnson. And paid with monies from the Federal
Treasury?
Mr. Inselbuch. No, I don't get any money from the Federal
Treasury.
Mr. Johnson. You don't get any money--who do you get money
from?
Mr. Inselbuch. My clients in a bankruptcy, the committee
counsel are paid for--all committee counsel fees are paid by
the debtor.
Mr. Johnson. I see. So you have actually been paid by the
asbestos industry, or your fees are generated through your
work, which is for plaintiffs and for defendants in the
asbestos litigation.
Mr. Inselbuch. I don't look at it quite that way,
Congressman. I look at the fees of these bankruptcies basically
are coming out of the asbestos victim's hide.
Mr. Johnson. Okay. So what I am saying, though, you are
going to get paid regardless. The other witnesses here,
including Mr. Scarcella--Mr. Scarcella, you are with a firm
that serves as an expert witness in these asbestos-related
cases; is that correct?
Mr. Scarcella. Yes, that is one of the things we do.
Mr. Johnson. And you can look forward to receiving more
business as a result of your testimony today; isn't that
correct?
Mr. Scarcella. I don't necessarily know if there is a
direct correlation there. In this work that I do, testifying on
issues of trust transparency, doesn't have a direct correlation
to the work that we do on bankruptcy estimation and financial
reporting, insurance allocation work.
Mr. Johnson. Okay. Now, I will tell you, Judge Ableman, you
said today in your testimony or you have said in your written
testimony, you have talked about the fact that you had this one
episode where a plaintiff's counsel was held in contempt?
Judge Ableman. No, I did not.
Mr. Johnson. You did not say that? Or something happened
with the one plaintiff's lawyer that appeared before you in
your many years of practice as a Federal court judge or, excuse
me, a state court judge?
Mr. Farenthold. The gentleman's time has expired. I
apologize for being so quick with the gavel, but we are trying
to get this hearing completed before votes go.
Mr. Johnson. All right.
Mr. Farenthold. So we will move on to Mr. Marino.
He left, it looks like. So we will go down to Mr. Collins.
Mr. Collins. Thank you, Mr. Chairman. I appreciate it.
Let's get back to the FACT Act instead of who you are here
with and how you make your money, which is absolutely
irrelevant to this conversation today.
One of the questions I have that comes up in this is
dealing with transparency, and this is sort of an interesting
act because it is not dealing overall. In a few of the
jurisdictions, plaintiffs are required to make their trust
submissions prior to trial--New York City, Montgomery County,
Pennsylvania. There are several in that. Doesn't this delay the
ability of the plaintiffs to delay their trust submissions
until after--it is essentially a double dipping episode? I know
there's probably disagreement here, but I would like to hear
both accounts.
Mr. Inselbuch. Is that addressed to me?
Mr. Collins. You can go first, and the Judge can go second.
Mr. Inselbuch. Well, it is one of the principles of the
tort system that a plaintiff gets to decide who the plaintiff
sues, who the plaintiff settles with, and on what basis. When
you move that into the trust system, the same theory should say
that a plaintiff should be able to decide if and when the
plaintiff will file a claim with the trust. To the extent that
under state law settling with a trust would have a detrimental
effect on the plaintiff's ability at verdict to collect from an
existing solvent defendant, that choice under state law should
be left to the plaintiff, because the issue really is who bears
the shortfall.
Is the shortfall--in other words, the lack of ability of
these insolvents to pay--should that shortfall be paid for by
the other culpable co-defendants, or should it be paid for by
the innocent plaintiff? That is a question of policy that is
decided in 50 legislatures around the country.
Mr. Collins. I want to follow up here. Isn't it also a
principle of judicial work also that disclosure and discovery
are also elements of this as well? You made a comment earlier
that I thought really oversimplified it, that the plaintiff's
job was to get what they need, and the defendant get that, and
you have made this sort of the case for the FACT Act at that
point, just basically saying put into play what is available or
what should be available in normal discovery.
Judge, the question I had for you is--and you made the
comment that it should be handled at the judge level. Explain
to this Committee how that is difficult from the judge's
perspective in issues where there is a problem with discovery.
Judge Ableman. Well, the problem isn't--first of all, we as
judges, or as former judges, as a former judge I can tell you
is very, very time-consuming to cite an attorney on a Rule 11
violation for not being honest with the court. It requires that
you have hearings, it requires that you write an opinion, it
requires you to detail with great specific precision what it is
this attorney has done or not done or should have done.
So judges are loath to take on that extra responsibility in
addition to their caseload. It is not just, oh, you are in
contempt, and that is the end of it. It becomes a big project
and a very distracting project. So it is not done very often.
But more importantly, I don't think that the victims in
these cases should not be fully compensated by every single
entity that has caused exposure. My problem is that without
full transparency, the facts that the case is based on are
sometimes not the full facts.
Mr. Collins. And I agree completely, the compensation ought
to be there.
There are some other issues around this, and I appreciate
that I need to move to a couple of quick things. One, I want to
ask this question because we are dealing with asbestos, and
reporting and not reporting. The Asbestos Information Act of
1988, you may or may not be familiar with it, which requires
manufacturers and processors of certain asbestos products to
disclose the asbestos products they made, as well as the years
of manufacture.
From my understanding, from what I have learned so far,
this law is rarely complied with or enforced. Why is that?
Mr. Inselbuch. You are asking me?
Mr. Collins. I will ask anybody who wants to answer the
question. You have done well answering so far today. I
appreciate your candor.
Mr. Inselbuch. I can't say that I have any familiarity with
that statute. But if what we are interested in is transparency,
as Judge Ableman would say, then why don't we have reciprocal
transparency? Why do we just assume that it is the plaintiffs'
lawyers who don't disclose what should be disclosed in the
discovery system? Why don't we have a system where the
defendants are required to provide public information about
where their products were so that we can check what their
answers are in the discovery process?
Mr. Collins. Well, part of that, as an attorney, it's part
of the legal process here. I mean, the plaintiff brought the
case, and there is an issue here that they would have to
describe on both sides to discovery, ask what they are looking
for as well. Again, they brought the case. The burden is going
to be on them to make their case. So that is an issue, and
defendants are putting a different format.
One last question, Professor Brown. Do you believe that the
information required under the FACT Act compares to--how does
it compare to other information that is normally disclosed in
bankruptcy or tort? Is this really requiring anything all that
unique?
Mr. Brown. I will refer to my written statement, where I go
into that in great detail, but I don't believe that it really
requires any additional information. In fact, if you were an
individual tort claimant and trying to seek damages or seek
recovery in a bankruptcy case, you may be required to file
this, though the provisions that I also mention under 107,
Section 107 of the bankruptcy code may be applied there, just
as they could be to----
Mr. Collins. Thank you.
Mr. Chairman, I yield back.
Mr. Farenthold. Thank you very much.
Mr. Cohen, you needed a second?
Mr. Cohen. Thank you. I have an asbestos victim's letter
and a number of public interest groups opposed to the Act. I
would ask that their letters and statements be made a part of
the record.
Mr. Farenthold. Without objection, so ordered.
[The information referred to follows:]
__________
__________
__________
__________
__________
Mr. Cohen. Thank you, sir.
Mr. Farenthold. Without objection, Chairman Goodlatte's statement
will also be admitted to the record. So ordered.
[The prepared statement of Mr. Goodlatte follows:]
Prepared Statement of the Honorable Bob Goodlatte, a Representative in
Congress from the State of Virginia, and Chairman, Committee on the
Judiciary
The history of asbestos litigation is filled with human tragedy,
culminating in what the Supreme Court described as an ``asbestos
litigation crisis'' in the pivotal case of Amchem v. Windsor. As
businesses were forced to declare bankruptcy as a last resort to manage
their liability, the prospect of full compensation for asbestos
victims--not to mention current employees' livelihoods--grew dimmer.
In 1994, Congress attempted to address the crisis through
legislation. Section 524(g) was added to the Bankruptcy Code, to allow
companies in Chapter 11 to form a trust that would become responsible
for receiving, processing and paying all future claims by asbestos
victims. This trust system was designed to relieve pressure on the
courts, allow businesses to emerge from Chapter 11 and continue
operations, and streamline the compensation process for asbestos
victims.
Most of the largest and deepest-pocketed defendants have gone
through bankruptcy and formed trusts under Section 524(g). So now
plaintiffs' attorneys have moved on to suing secondary targets in
courts while filing separate claims with the trusts--continuing the
process that one plaintiff's lawyer described as the ``endless search
for a solvent bystander.''
Unfortunately, there is evidence of fraud and abuse in the asbestos
trust compensation system. The law provides that victims of tortious
conduct should be made whole, and this is no less true for asbestos
victims--they should receive 100% of the compensation they are due. But
no one should be able to recover twice--or more than twice--by pleading
one set of facts in court and then a different, perhaps contradictory,
set of facts to an asbestos trust. Bringing greater transparency to the
asbestos trust system will discourage this sort of conduct in the first
place, and help to expose it when it happens.
The Subcommittee on the Constitution examined these matters in a
September 2011 hearing. In addition, H.R. 4369, the ``Furthering
Asbestos Claim Transparency Act of 2012,'' or the FACT Act, was the
subject of a legislative hearing before the Subcommittee on Courts,
Commercial and Administrative Law in May 2012. That bill was ultimately
ordered reported by the Full Committee with an amendment last June.
I am very pleased that Mr. Farenthold has reintroduced this
important, bi-partisan legislation this Congress. H.R. 982, the FACT
Act of 2013, will protect trust assets reserved for current and future
victims by striking the proper balance between much-needed transparency
and preserving the dignity and medical privacy of asbestos victims. I
encourage all of my colleagues to support this legislation, and I look
forward to hearing from the witnesses today.
__________
Mr. Farenthold. We now have 7 minutes and 44 seconds
remaining in a vote on the Floor. I don't think we have any
more Members looking to ask questions at this time.
But without objection, all Members will have 5 legislative
days to submit additional written questions for the witnesses,
or additional material for the record.
With that, this concludes today's hearing, and we are
adjourned.
[Whereupon, at 5:05 p.m., the Subcommittee was adjourned.]
A P P E N D I X
----------
Material Submitted for the Hearing Record
Prepared Statement of the Honorable Blake Farenthold, a Representative
in Congress from the State of Texas, and Member, Subcommittee on
Regulatory Reform, Commercial and Antitrust Law
Prepared Statement of the Honorable Hakeem S. Jeffries, a
Representative in Congress from the State of New York, and Member,
Subcommittee on Regulatory Reform, Commercial and Antitrust Law
Response to Questions for the Record from S. Todd Brown,
SUNY Buffalo Law School
Response to Questions for the Record from
the Honorable Peggy L. Ableman, McCarter & English, LLP
Response to Questions for the Record from Elihu Inselbuch,
Member, Caplin & Drysdale, Chartered
Response to Questions for the Record from Marc Scarcella,
Bates White, LLC