in re garlock sealing technologies, llc 71 · in re garlock sealing technologies, llc73 cite as 504...

71IN RE GARLOCK SEALING TECHNOLOGIES, LLCCite as 504 B.R. 71 (Bkrtcy.W.D.N.C. 2014)

In re GARLOCK SEALINGTECHNOLOGIES, LLC.,

et al., Debtors.1

No. 10–31607.

United States Bankruptcy Court,W.D. North Carolina.

Jan. 10, 2014.Background: After Chapter 11 debtor,which produced and sold asbestos gasketsand sheet gasket material used in industri-al applications, sought to have asbestos-related tort claims against it determined inindividual allowance proceeding, order wasissued providing for estimation of aggre-gate amount of debtor’s liability for pres-ent and future mesothelioma claims forpurposes of plan formulation.Holdings: The Bankruptcy Court, GeorgeR. Hodges, J., held that:(1) legal liability approach to estimation

would result in reasonable and reliableestimate of debtor’s liability, warrant-ing its use rather than settlement ap-proach;

(2) reasonable and reliable estimate of ag-gregate liability to pending mesothelio-ma claimants was $25,000,000; and

(3) reasonable and reliable estimate of ag-gregate liability to future mesothelio-ma claimants was $100,000,000.

Ordered accordingly.

1. Bankruptcy O2829Agency statements, policies, and regu-

lations, and company warnings required bythem, were not relevant to bankruptcycourt’s estimation, for plan formulationpurposes, of aggregate liability for pendingand future mesothelioma claims of Chapter11 debtor that produced and sold asbestosgaskets and sheet gasket material used in

industrial applications; regulatory authori-ties used precautionary principles to carryout their mandates and used linear projec-tions into a zone of inference of theoreticalrisk not appropriate for judicial determina-tions, including causation. 11 U.S.C.A.§ 502(c).

2. Bankruptcy O2829In estimating, for plan formulation

purposes, aggregate liability for pendingand future mesothelioma claims of Chapter11 debtor that produced and sold asbestosgaskets and sheet gasket material used inindustrial applications, bankruptcy courtwas not required to determine whetherlow-dose exposure to chrysotile in debtor’sgaskets could cause mesothelioma; instead,it was sufficient for court to conclude thatdebtor demonstrated that its products re-sulted in relatively low exposure of rela-tively lower potency asbestos to limitedpopulation, and that population exposed todebtor’s products was necessarily exposedto far greater quantities of higher potencyasbestos from products of others. 11U.S.C.A. § 502(c).

3. Bankruptcy O2829Practice of withholding of exposure

evidence in asbestos-related tort actionsby plaintiffs and their lawyers, which hadeffect of unfairly inflating prepetition re-coveries against Chapter 11 debtor thatproduced and sold asbestos gaskets andsheet gasket material used in industrialapplications, was sufficiently widespread torender debtor’s prepetition settlements ofasbestos-related claims unreliable as a pre-dictor of its true liability, and thereforedebtor’s settlement and verdict historyduring that period did not reflect its trueliability to pending and future mesothelio-ma claimants in estimating debtor’s aggre-gate liability for plan formulation pur-poses. 11 U.S.C.A. § 502(c).

1. The Debtors in these jointly administeredcases are Garlock Sealing Technologies, LLC(‘‘Garlock’’), Garrison Litigation Management

Group, Ltd., and The Anchor Packing Compa-ny.

72 504 BANKRUPTCY REPORTER

4. Bankruptcy O2829Legal liability approach to estimation,

for plan formulation purposes, of aggre-gate liability for mesothelioma claims ofChapter 11 debtor that produced and soldasbestos gaskets and sheet gasket materialused in industrial applications, which fo-cused on merits of claims, would result inreasonable and reliable estimate of debt-or’s liability, warranting its use ratherthan settlement approach involving statis-tical extrapolation from debtor’s claimsresolution history; claims resolution histo-ry did not reliably reflect debtor’s liability,given plaintiffs’ widespread practice ofwithholding exposure evidence and inclu-sion of avoided defense costs, whereas le-gal liability approach, which used data ac-curately reflecting pool of claims againstdebtor, was designed to produce accurateestimate. 11 U.S.C.A. § 502(c).

5. Bankruptcy O2829Under legal liability approach, reason-

able and reliable estimate of aggregateliability to pending mesothelioma claim-ants of Chapter 11 debtor, which producedand sold asbestos gaskets and sheet gask-et material used in industrial applications,was $25,000,000; underlying expert esti-mate relied in large part upon analyticaldatabase which accurately reflected pool ofclaims against debtor, and took into ac-count such factors as compensatoryawards that average claimants might re-ceive from all asbestos defendants, debt-or’s potential share of such awards, likeli-hood of claimant recovery, number ofpresent and future claimants asserting ex-posure to debtor’s products, and discountrate. 11 U.S.C.A. § 502(c).

6. Bankruptcy O2829Under legal liability approach, reason-

able and reliable estimate of aggregateliability to future mesothelioma claimantsof Chapter 11 debtor, which produced andsold asbestos gaskets and sheet gasketmaterial used in industrial applications,was $100,000,000; estimate was based uponexpert’s use of highly accurate model pre-

dicting future incidence of mesotheliomaand another expert’s estimate of portion ofthat number who could have been exposedto debtor’s products. 11 U.S.C.A.§ 502(c).

C. Richard Rayburn, Jr., Shelley KoonAbel, Albert F. Durham, Ross Robert Ful-ton, John R. Miller, Jr., Ashley K. Neal,William Samuel Smoak, Jr., Rayburn Coo-per & Durham, Charlotte, NC, LouisAdam Bledsoe, III, Garland S. Cassada,Jonathan C. Krisko, Richard C. Worf, D.Blaine Sanders, Robinson Bradshaw Hin-son P.A., Charlotte, NC, Cary Schachter,Raymond P. Harris, Jr., Schachter Harris,Irving, TX, for Garlock Sealing Technolo-gies LLC (Debtor).

Trevor W. Swett III, Leslie M. Kelleher,James P. Wehner, Jeffrey A. Liesemer,Kevin C. Maclay, Todd E. Phillips, Caplin& Drysdale, Washington, DC, Elihu Insel-buch, Caplin & Drysdale, New York, NY,Travis W. Moon, Richard S. Wright, An-drew T. Houston, Moon Wright & Hous-ton, PLLC, Charlotte, NC, Nathan D.Finch, Motley Rice, LLC, Washington,DC, Scott L. Frost, Waters Kraus & Paul,El Segundo, CA, Jonathan A. George, Wa-ters Kraus & Paul, Dallas, TX, Glenn C.Thompson, Hamilton Stephens Steele &Martin, Charlotte, NC, for the OfficialCommittee of Asbestos Personal InjuryClaimants.

Daniel G. Clodfelter, Hillary B. Crab-tree, Mark A. Nebrig, E. Taylor Stukes,Moore & Van Allen PLLC, Charlotte, NC,for Coltec Industries, Inc.

Jonathan P. Guy, Kathleen A. Orr, Or-rick, Herrington & Sutcliffe, LLP, Wash-ington, DC, for The Future AsbestosClaimants’ Representative.

ORDER ESTIMATING AGGREGATELIABILITY

GEORGE R. HODGES, BankruptcyJudge.


This matter is before the court after ahearing to determine the reasonable andreliable estimate of Garlock Sealing Tech-nologies, LLC’s liability for present andfuture mesothelioma claims. The courthas concluded that the amount sufficient tosatisfy that obligation is $125 million. Insupport thereof, the court makes the fol-lowing findings of fact, conclusions of lawand order:SUMMARY

Garlock produced and sold asbestosgaskets, sheet gasket material and packingused in pipes and valves that transportedhot fluids in maritime, refinery and otherindustrial applications. Its products spenttheir working lives bolted between steelflanges or valves and generally wrappedwith asbestos thermal insulation producedby other manufacturers. Garlock’s prod-ucts released asbestos only when dis-turbed, such as by cutting, scraping, wirebrushing or grinding—procedures thatwere done sporadically and then generallyonly after the removal of the thermal insu-lation products which caused a ‘‘snow-storm’’ of asbestos dust. It is clear thatGarlock’s products resulted in a relativelylow exposure to asbestos to a limited popu-lation and that its legal responsibility forcausing mesothelioma is relatively de mini-mus. The Sixth Circuit has noted in anindividual pipefitter’s case that the com-parison is as a ‘‘bucket of water’’ would beto the ‘‘ocean’s volume.’’ Moeller v. Gar-lock Sealing Techs., LLC, 660 F.3d 950,954–55 (6th Cir.2011).

Garlock was sued in the tort system byvictims of various asbestos-related diseasesstarting in the early 1980s—generally inComplaints naming 20 to 50 or more de-fendants. By all accounts Garlock wasvery successful in settling (and rarely try-ing) such cases. By the early 2000s thefocus of tort litigation had become meso-thelioma wrongful death cases. Suchcases presented an extraordinary environ-ment because of the disastrous conse-quences of a plaintiff’s verdict. Thus, evenwhere the likelihood of an adverse verdictwas small, the prospect of a huge verdict

and the great expense of defending a trialdrove Garlock to settle cases regardless ofits actual liability.

Beginning in early 2000s, the remaininglarge thermal insulation defendants filedbankruptcy cases and were no longer par-ticipants in the tort system. As the focusof plaintiffs’ attention turned more toGarlock as a remaining solvent defendant,evidence of plaintiffs’ exposure to otherasbestos products often disappeared.Certain plaintiffs’ law firms used this con-trol over the evidence to drive up the set-tlements demanded of Garlock. And,Garlock suffered a few large jury verdictswhen such evidence was not available.Garlock continued settling cases with rela-tive success, but at higher amounts, untilits insurance was exhausted and it filedthis bankruptcy case in June 2010. In-volved in the present matter are over4000 mesothelioma claimants who hadsued Garlock prior to its bankruptcy filingand also an unknown number of victimswho will develop mesothelioma in the fu-ture.

The purpose of this Order is to deter-mine Garlock’s responsibility for causingmesothelioma and the aggregate amount ofmoney that is required to satisfy its liabili-ty to present claimants and future victims.The estimates of Garlock’s aggregate lia-bility that are based on its historic settle-ment values are not reliable because thosevalues are infected with the impropriety ofsome law firms and inflated by the cost ofdefense. The best evidence of Garlock’saggregate responsibility is the projectionof its legal liability that takes into consid-eration causation, limited exposure and thecontribution of exposures to other prod-ucts. The court has determined that $125million is sufficient to satisfy Garlock’s lia-bility for the legitimate present and futuremesothelioma claims against it.PROCEDURAL BACKGROUND

1. This case commenced in June of2010 with the filing of a Chapter 11 peti-tion by Garlock Sealing Technologies, LLCand its affiliates, The Anchor PackingCompany and Garrison Litigation Manage-


ment Group, Ltd. An Asbestos ClaimantsCommittee (the ‘‘ACC’’) was appointed torepresent existing asbestos disease claim-ants against the debtors. The members ofthe ACC are plaintiffs’ law firms repre-senting those claimants. Also, a FutureClaimants Representative (the ‘‘FCR’’)was appointed to represent future asbestosdisease claimants. The debtors are sub-sidiaries of a non-filing company, ColtecIndustries, Inc. (‘‘Coltec’’), which is itself asubsidiary of Enpro Industries, Inc. Al-though not a debtor, the court has permit-ted Coltec to appear and participate in allmatters. Thus, the parties who have ac-tively participated in the proceedings areGarlock, Coltec, the ACC and the FCR.

2. The parties first embarked on a mis-sion of education because this is a case offirst impression in this court. Early on,the parties presented six days of testimonyon the nature of asbestos litigation in gen-eral and specifically regarding Garlock andits affiliates.

3. Garlock sought to have a determina-tion of claims in an individual allowanceproceeding. The court declined to embarkon an allowance proceeding at that time.Instead, the court determined to estimatethe aggregate amount of Garlock’s asbes-tos liability for the purpose of formulatinga plan of reorganization, pursuant to 11U.S.C. §§ 502(a) & 105(a). See In ReGarlock Sealing Techs., LLC, No. 10–31607 (Bankr.W.D.N.C. Apr. 13, 2012),(Order for Estimation of MesotheliomaClaims) [Dkt. No. 2102].

4. The parties have engaged in wideranging discovery in preparation for theseestimation proceedings. The discovery in-cluded not only the normal discovery toolspursuant to the Federal Rules, but alsomultiple questionnaires directed at theclaimants (and their law firms). Thesewere in the nature of social science sur-veys and sought important information on

work histories and exposure to Garlock’sand other manufacturers’ products. Theparties also engaged expert assistance forthe purpose of data compilation, financialprojection and overall estimation.

5. In the due course of the base bank-ruptcy case, Garlock has proposed a Planof Reorganization that would include afund of $270 million for resolution of pres-ent and future asbestos-related claims.This estimation is necessary to consider-ation of that Plan or any subsequent modi-fication to it or a competing Plan filed byanother party.

6. Fundamental to the present pro-ceedings is this court’s April 2012 Orderfor Estimation of Mesothelioma Claims.That order establishes the goal of reachinga ‘‘reasonable and reliable estimate of theamount of Garlock’s liability for presentand future mesothelioma claims’’ and setsthe course for achieving that.

7. The parties have had two distinctapproaches to Estimation that were re-flected in their evidence at the estimationhearing. The debtors offered a ‘‘legal lia-bility’’ approach that considers the meritsof the claims in aggregate by applying aneconometric analysis of the projected num-ber of claimants and their likelihood ofrecovery. The ACC and FCR offered a‘‘settlement approach’’ based upon an ex-trapolation from Garlock’s history of re-solving mesothelioma claims in the tortsystem. The end products of the two ap-proaches differ by about a billion dollars:Garlock’s estimate is about $125 millionand the ACC/FCR estimates are $1–1.3billion.

8. The evidence discussed below waspresented at a hearing that took place overseventeen trial days and included 29 wit-nesses and hundreds of exhibits. Thecourt attempts to explain its decision and


the reasoning for it by discussing in thefollowing order:

1) The ‘‘science’’ evidence relating to as-bestos and asbestos disease;

2) The ‘‘social science’’ evidence relatingto practices in asbestos tort litigation;

3) The case law in asbestos estimationcases; and

4) The resulting estimation of Garlock’saggregate liability.

9. Because of the relative overwhelm-ing magnitude of mesothelioma claims incomparison to claims based on other dis-eases, the parties have agreed and thecourt has ordered that this proceedingdoes not include any liability for non-meso-thelioma claims or any claims against An-chor. The sole issue here is the liability ofGarlock for mesothelioma.

SCIENCE EVIDENCE

10. The parties made an extensive of-fering of scientific evidence on a number oftopics: (a) the nature of asbestos, its dif-ferent types and their relative toxicity; (b)the medical evidence of the operation ofasbestos in the lungs; (c) uses of asbestosin Garlock and other third-parties’ prod-ucts in naval and industrial applications;(d) industrial hygiene and epidemiology ev-idence of exposure caused by Garlock andthird-parties’ products; and (e) safety andregulatory pronouncements regarding as-bestos exposure. The nature of this evi-dence was reported to be much like whatmay have been offered at a trial of apersonal injury/wrongful death claim by amesothelioma victim. There it would benecessary for the jury to resolve issues ofcausation in a binary fashion—‘‘yes’’ or‘‘no.’’ But, here in making an aggregateestimation, that is not necessary. Rather,it is sufficient for the court to find that,predominantly, Garlock’s products exposedpeople to only a low-dose of a relativelyless potent chrysotile asbestos and almostalways in the context where they were

exposed to much higher doses of morepotent amphibole asbestos. So, across allpotential claims, Garlock’s liability formesothelioma should be relatively small.

Nature of Asbestos

11. ‘‘Asbestos’’ is actually a generic ormarketing term for a group of naturallyoccurring minerals used for commercialapplications. These include ‘‘chrysotile’’and ‘‘amphiboles.’’ Amphiboles further in-clude ‘‘amosite’’ and ‘‘crocidolite.’’ Amphi-boles have relatively longer, wider andstraighter fibers. Chrysotile has a serpen-tine fiber structure. There are otherforms of asbestos that are not used incommercial applications, and these aresometimes a contaminant. Garlock’s prod-ucts used chrysotile almost exclusively.Amosite was largely used for insulationmaterials and crocidolite for specialty ap-plications in products produced by others.

12. The relative toxicity or potency tocause disease of the three has been vari-ously expressed. One study stated theratio as 500:100:50 (crocidolite: amosite:chrysotile). Modification of that ration ex-pressed it as 100:5:1. Another study in2008 expressed the ratio between amphi-boles to chrysotile as 900–2000:0–1. Thus,it is clear under any scenario that chryso-tile is far less toxic than other forms ofasbestos.

Medical Evidence

13. Inhalation of asbestos can cause anumber of diseases of the lung. The focusof this estimation is Garlock’s liability forcausing mesothelioma, which is a malig-nancy of the lining around the lungs. It isalways fatal, causing death essentially bysuffocation within about eighteen monthsof diagnosis. Fortunately, mesotheliomais very rare. But, for the individual victimit is a horrific death.

14. There is a ‘‘background’’ rate ofincidence of mesothelioma in all popula-


tions that is not known to be caused byasbestos exposure, but this amounts to aminiscule percentage of cases. The over-whelming incidence of mesothelioma iscaused by exposure to asbestos.

15. There is a ‘‘dose-response’’ elementto the development of mesothelioma: Ahigher and more prolonged dose of asbes-tos increases the chance of developing thedisease.

16. There is a long ‘‘latency period’’between first exposure to asbestos anddevelopment of mesothelioma. The medi-an latency period is around 35 years.Higher doses of exposure appear to resultin a shorter latency period, but the diseaserarely develops in less than ten years.

17. Dr. Thomas Sporn, M.D., is a pa-thologist who is a professor and attendingphysician at Duke University where he isthe head of Pulmonary and Thoracic Pa-thology. He described the differences inthe mineralogical structures of the twogroups of asbestos minerals and the result-ing biologic consequences. The amphi-bole—amosite, crocidolite and non-com-mercial tremolite—have a straighter,wider and longer fiber structure. Chryso-tile fibers have a serpentine structure andshorter length. Bio-persistence—theamount of time an inhaled particle canpersist in the body—is much longer foramphibole asbestos than for chrysotile.Amphiboles resist chemical degradation inthe human body and can persist formonths to years. Chrysotile is brokendown in the body in days to weeks. Dr.Sporn concluded that there is no doubtthat amphibole exposure causes mesotheli-oma. But, chrysotile has a much lowerpathogenicity. That is, a person wouldhave to have a much greater exposure tochrysotile to increase their risk of meso-thelioma. And exposure to chrysotile froma commercial end product such as gasketswould not be sufficient to cause mesotheli-

oma. Further, Dr. Sporn concluded thatthere was no scientifically reliable connec-tion between chrysotile exposure andmesothelioma.

18. Dr. David Weill, M.D., is a physi-cian and professor at Stanford University.He is the Director of Stanford’s Center forAdvanced Lung Disease. He explainedthe human body’s physical and cellulardefenses to different types of asbestos fi-bers. The body’s physical defenses in thenose, mouth, throat and lungs are morelikely to catch a fiber that has been encap-sulated because it is less aerodynamic thana loose fiber. Even after being inhaled, afiber may be attacked by macrophage cellsthat engulf the fiber and release enzymesto dissolve it. The long fibers of amphi-boles tend to resist the macrophage cells’efforts to eliminate it. The smaller parti-cles of chrysotile are more easily defeatedby the macrophage cells and then eliminat-ed by the lymphatic system. Longer am-phibole fibers tend to stick in the lymphat-ic system and accumulate in the pleuraltissue of the lung—the normal site of ma-lignant mesothelioma. Thus, there is abiologic rationale for the differences in tox-icity of the asbestos fiber types.

19. Dr. Weill concluded that low doseexposure to chrysotile from gaskets andpacking would not contribute to the causeof mesothelioma even over a lifetime ofworking with those products. There hasbeen no demonstration that pure chrysotilecauses asbestos diseases and any likelycontamination would only amount to a min-ute exposure.

20. Dr. Arnold Brody testified aboutthe results of his studies of the effect ofchrysotile on rats. He has a Ph.D. in cellbiology and is an experimental pathologistand professor at Tulane University. Hisresearch results are informative, but arenot probative on issues before the courtbecause his focus has not been on causa-


tion of disease in humans, but rather onthe cellular mechanics of asbestos in ani-mals. His research does not simulate low-level asbestos exposure in humans. Rath-er, his studies used extremely high concen-trations (1000 f/cc) of pure chrysotile in anaerosol form continuously exposed to ratsthat had been bred to be pre-disposed todeveloping disease. Further, none of hisstudies have actually caused his rats todevelop mesothelioma. Moreover, otherstudies on primates concluded with nopathological findings with low dose expo-sure to chrysotile. Finally, similar resultsto his studies are produced by many othersubstances besides asbestos. Therefore,the court does not find Dr. Brody’s testi-mony persuasive or probative on the issueof the toxicity of sporadic low doses ofchrysotile in humans.

Garlock’s Products and Applications

21. Garlock produced gaskets andsheet gasket material that contained chry-sotile asbestos encapsulated in a polymersubstance. On a much smaller scale, italso produced a product line of gasketscontaining crocidolite asbestos for special-ty applications involving acids. A relatedcompany, Anchor Packing, produced pack-ing for valves that contained chrysotile.The last two products are not significantoverall sources of personal injury claims,so the evidence primarily focused on Gar-lock’s chrysotile gasket products. Gar-lock’s name was printed on its gaskets,which made it well known in its industry,

and may have contributed to its recogni-tion by claimants.

22. Asbestos gaskets were used inNavy, other marine, refinery and otherindustrial applications—anywhere that hotliquid was moved in pipes. A gasket isnecessary where two sections of metal pip-ing are bolted together or where a sectionof pipe is bolted to a valve. These weregenerally large pipes and valves and oftenran overhead in cramped spaces. Pipesand valves are joined at flanges that arebolted together. A gasket fits betweenthe flanges to prevent leakage. It mayremain there for years. Asbestos wasused in gaskets for hot applications be-cause of its insulative and cohesive proper-ties.

23. Virtually all of the pipes, flangesand valves where Garlock’s gaskets wereused were wrapped in a thick covering ofthermal insulation produced by other man-ufacturers. This thermal insulation con-tained amosite asbestos and in some appli-cations loose amosite was used to fill voidsin the asbestos wrapping.

24. To the uninitiated, the term ‘‘insu-lation’’ may conjure up images of ‘‘R’’ val-ues, pink panthers and itchy material be-tween attic joists. But, that is not the‘‘thermal insulation’’ that surrounded thepipes and valves where Garlock’s gasketswere used.

25. A typical pipe joint covered in ther-mal insulation would appear somethinglike this diagram:


26. Garlock’s gaskets did not emit as-bestos fibers in their stationary form or inuse when sandwiched between two metalflanges. It was only when the gasketswere cut, hammered, scraped, brushed orabraded that they could generate breatha-ble asbestos fibers. That occurred whengaskets were shaped or removed fromflange faces. Gaskets were cut from sheetmaterial using shears or saws and by ham-mering the material out against the flangeface. When gaskets were removed fromflanges, they were normally degraded byyears of existing in a hot environment.Workers scraped the flange to remove thebulk of the gasket material, most oftenwith a putty knife. Then the gasket resi-due would be removed by brushing with ahand or power wire brush.

27. But, before a gasket could be re-placed, it was necessary to remove thethermal insulation material from around

the joint or valve. This could be done witha knife or saw, but was commonly accom-plished by beating the material with ahammer or other available tool. Regard-less of the tool used, this process created agreat deal of dust containing amosite as-bestos. It was commonly described byworkers as a ‘‘snowstorm’’ of dust.

Exposure Evidence—Epidemiology andIndustrial Hygiene

28. Two studies of exposure to asbes-tos specifically from gasket removal workare inconclusive at best. There is a greatdeal of peer-reviewed scientific literaturerelating to asbestos exposure in general,with varying degrees of reliability. Themost reliable and probative of those re-ports confirms that exposure to asbestosfrom end users of encapsulated asbestosproducts is minimal.


29. Fred Boelter testified about a sim-ulation that he prepared. He is a certifiedindustrial hygienist, professional engineer(civil and environmental) and licensed as-bestos inspector with forty years experi-ence. He constructed a sample insulatedpipe system inside of a sealed air chamberand collected air samples during insulationand gasket removal activities. He used ahammer to beat and break off the thermalinsulation surrounding the pipe joint flang-es and then used a putty knife and electricwire brush to remove the gasket and ad-hered gasket material from the flange sur-faces. Analysis of the air samples takenduring each activity demonstrated noquantifiable asbestos exposure from gasketremoval. Also, whether dry or wet, andregardless of which tool was used, theOSHA exposure standard of 1 fiber/cc wasnot exceeded in any operation with thegasket. On the other hand, removal of theinsulation material exceeded the 1 f/cc ex-posure standard by 50 to 80 times.

30. Mr. Boelter’s study was well-con-ceived and carried out, but it suffers fromthe fact that it is a simulation and that itwas recently constructed. It would beunusual in an actual work situation forgaskets to be removed soon after their in-stallation. Normally years of use anddegradation would take place prior to re-moval. In fact, Mr. Boelter’s gasketscame off the flanges easily and largelyintact which was not the normal experi-ence in actual work environments. Con-sequently, Mr. Boelter’s simulation is notprobative of such actual work experience.

31. Dr. William Longo is a Ph.D. inMaterials Science and Engineering whoworks for Materials Analytical Services, aprivate laboratory and consulting group.He performed a work practice simulationstudy of fiber release from gaskets in 2002,published an article about that study andhas done some subsequent gasket studies.

32. Dr. Longo’s studies produced fiberreleases well above background levels, andhe offered his opinion that fabrication andremoval of gaskets would expose a personto significant, but varying, amounts of as-bestos fibers depending on the size of thegasket, the amount of residue on theflange and the method of removal.

33. Dr. Longo’s studies suffer fromserious deficiencies and the court findsthat they are not reliable:

a) The first supposed ‘‘work simulation’’involved gluing a new gasket to a flangewith epoxy and then abrading it with vari-ous methods. There is no testimony thatwould support that simulation as a practicethat actually occurred in the workplace.Especially when Dr. Longo admits that theamount of dust produced depended inlarge part on the amount of gasket pres-ent, his grinding and abrading whole gask-ets is not probative of what was producedby actual workers removing gasket resi-due.

b) Dr. Longo’s ‘‘gasket studies’’ sufferfrom a list of deficiencies sufficient to ren-der them useless. Some of the more glar-ing problems are:(i) The number of basicerrors is remarkable for a supposed scien-tific study. Dr. Longo attempted to ex-plain these as ‘‘typos,’’ but many of theerrors involve things such as misidentifica-tion of fibers and mislabeling of samples;(ii) The materials used in the studies wereprovided with funding by plaintiffs’ attor-neys, but that fact was not disclosed; (iii)The studies measured dust, but there wasno showing of what, if any, of the dustcontained asbestos fibers; (iv) The studyused Tyndall lighting in a video, but therewas no scientific purpose for this and noth-ing in the form of ‘‘scientific’’ results werereported as a result of the lighting; (v)The results were influenced by the over-zealous techniques used which involved us-ing tools above their safety ratings; (vi)


some equipment used to measure dust con-centrations malfunctioned and/or was notoperated properly and led to puzzling re-sults—such as measurement of more dustduring a rest period than when actuallyworking.

34. The appearance is that Dr. Longo’sstudies were carried out in such a way asto produce the highest results possible andto overdramatize the process. As such,the court cannot accept his studies or opin-ions as probative.

35. Dr. Longo’s studies are pseudo-sci-ence at best. This is best demonstratedby comparison to the truly scientific studydone by Dr. Lambertus Hesselink. Dr.Hesselink holds a Ph.D. in Applied Me-chanics and Physics and is a professor inthe electrical engineering and appliedphysics departments of Stanford Universi-ty. His specialty is optics and nanopho-tonics. He performed an analysis thatconcluded that the bright spots in Dr.Longo’s Tyndall lighting video could notpossibly be respirable asbestos in therange of .01 to 3 microns in diameter. Dr.Hesselink’s study focused on measuringthe amount of light scattered by a singlechrysotile fiber. The process is fully docu-mented and is repeatable by other scien-tists who might want to test it. By con-trast, the results from Dr. Longo’s studycould not be repeated, even by his ownstaff. Dr. Hesselink’s study shows thatunder all circumstances, it is not possiblefor the human eye to see particles in therange of .01—3 microns in diameter andthat the particles visible in Dr. Longo’svideo are not chrysotile fibers.

36. Finally, Mr. Boelter testified thatthere is no useful application for Tyndalllighting in industrial hygiene because itcannot be quantified. He further demon-strated that Tyndall lighting shows a greatdeal of visible ‘‘dust’’ generated when an

electric wire brush is applied to a newmetal flange with no gasket on it.

37. Larry Liukonen is a certified in-dustrial hygienist who conducted gasketstudies for the U.S. Navy in 1978. Hestudied all aspects of the life cycle of agasket. His study involved monitoringworkers at Bremerton Naval Shipyardduring ‘‘rip out’’ operations that were partof maintenance on naval ships. The workmonitored included insulation removal,forming gaskets from sheet material, andthe full range of activities related to gasketremoval and flange cleanup. The studydemonstrated that there was exposure inthe range of 3 to 5 f/cc for ‘‘manufactur-ing’’ gaskets from sheet material usingshears and saws. Further, end users ofgaskets did not have nearly that expo-sure—gasket removal produced only mini-mal detectable levels of dust and all sam-ples were less than 1 f/cc; the range andaverage for hand scraping of gasket resi-due was .05 f/cc. Mr. Liukonen concludedfrom his study that there was no hazardassociated with exposure to asbestos fromcompressed asbestos sheet gaskets. Mr.Liukonen also conducted a 1975 study ofinsulation exposure for the Navy. The ex-posures from thermal insulation consis-tently exceeded the short-term limits forasbestos exposure that were established atthat time.

38. Dr. Carl Brodkin and Dr. LauraWelch both testified that any documentedoccupational exposure to chrysotile—re-gardless of how minimal—was sufficient toattribute it as a cause of mesothelioma.Dr. Brodkin is a physician in Occupationaland Environmental Medicine and InternalMedicine. Dr. Welch is a physician em-ployed by the Center for Construction Re-search and Training (formerly known asthe Center to Protect Workers’ Rights).Their opinions were based on the review ofa number of studies in peer-reviewed liter-


ature. A fundamental flaw in their analy-ses is that the studies on which they relyall involve people in very high exposuresettings—such as miners or manufactur-ing/textile workers.

39. They then apply the findings fromsuch high-dose occupations to low-dose ap-plications without an adequate basis.Moreover, their methodology does not con-sider the portion of a person’s exposure toa particular product by time or intensity.

40. One study relied upon by Dr.Welch involved a textile plant in NorthCarolina. This study purportedly showsthat chrysotile asbestos was processed inthe plant and concludes that the asbestosdisease resulting in people who workedthere was a result of chrysotile exposure.But, the study fails to account for asbestosexposures that those workers may havehad at other jobs or elsewhere. Conse-quently, whether or not there was chryso-tile at that plant, the conclusion reached isan inappropriate speculation.

41. Drs. Brodkin and Welch discountcontrary studies for certain flaws whileoverlooking similar or more significantflaws in the studies upon which they rely.There appear to be a host of scientificstudies in the peer-reviewed literature thatcan be cited for both sides of the issuesinvolved here. Some are financed by com-panies with potential liability and some arefinanced by those promoting claimants’ in-terests. All have flaws and drawbacks ofsome kind that can call their conclusionsinto question.

42. Dr. David Garabrant, M.D., is aphysician specializing in occupational medi-cine and epidemiology, the study of thedistribution and causes of disease condi-tions in human populations. He is associ-ated with the University of Southern Cali-fornia Medical School and maintained aclinical practice treating patients through2011.

43. Dr. Garabrant prepared a ‘‘meta-analysis by occupation’’ from all of thereliable studies that report the results ofexposure to asbestos. In that analysis hedetermined a risk ratio for various occupa-tions. From his analysis he concludedthat there is a background rate of meso-thelioma in all populations. He furtherconcluded that the occupations that dem-onstrate significantly increased risk of de-veloping mesothelioma are those involvedwith thermal insulation.

44. Of particular interest to Dr. Gara-brant were the studies and results for‘‘vehicle mechanics’’ since it is one of thefew occupations where workers are ex-posed to chrysotile, but not amosite asbes-tos. There has been no showing of anyincreased risk of mesothelioma in vehiclemechanics even though they work withbrake linings, clutches, and gaskets thatcontained chrysotile. The risk ratio forvehicle mechanics was about the same asfor teachers and office workers.

45. Dr. Garabrant collected all of thereliable scientific studies on whether low-dose exposure to chrysotile causes meso-thelioma. He found no statistically signifi-cant association between low dose chryso-tile exposure and mesothelioma.

46. Dr. Garabrant’s analysis appearsthorough and based on appropriate scienti-fic methods. The court finds it reliableand persuasive.

[1] 47. The court finds no probativevalue to the statements of safety and regu-latory agencies or to the warnings con-tained in Garlock’s own Materials SafetyData Sheets. Such statements simply in-volve something quite different than theissues involved here. Many, if not all,safety and regulatory bodies have issuedstatements, policies or regulations regard-ing asbestos exposure. But, these cannot


be probative on the issue of causation be-cause of the differences in the way courtsand regulatory authorities assess risk.See, In re W.R. Grace & Co., 355 B.R. 462,468–469 (Bankr.D.Del.2006). Regulatoryauthorities use ‘‘precautionary principles’’to carry out their mandates and use linearprojections into a zone of inference of theo-retical risk that are not appropriate forjudicial determinations, including causa-tion. Consequently, agency statements,policies and regulations—and companywarnings required by them—are simplynot relevant to estimation of Garlock’s ag-gregate asbestos liability.

[2] 48. In conclusion: The court doesnot believe that it is necessary for it todetermine—one way or the other—wheth-er low dose exposure to chrysotile in Gar-lock gaskets could cause mesothelioma.Because the court is estimating Garlock’saggregate asbestos liability across allcases, it is sufficient to conclude that Gar-lock has demonstrated that its productsresulted in relatively low exposure of arelatively lower potency asbestos to a lim-ited population and that the populationexposed to Garlock’s products was neces-sarily exposed to far greater quantities ofhigher potency asbestos from the productsof others.

SOCIAL SCIENCE EVIDENCE

49. Garlock was a relatively small play-er in the asbestos tort system. It is bestdescribed by one of its present opponent’sexperts as ‘‘a rather minor producer ofasbestos products TTT They made a gask-et. And it’s not a significant product, it’snot a significant defendant.’’ (Testimonyof Dr. Peterson in In re Western Asbes-tos/McArthur, Nov. 13, 2003).

50. Nevertheless, Garlock was an ac-tive litigant in the tort system for thirtyyears—until its insurance ran out. Duringthat time it tried to verdict a number of

cases: it won defense verdicts in a veryhigh percentage of those trials, but it suf-fered million-plus dollar judgments in afew cases. Garlock negotiated settlementsin over 99% of the twenty thousand meso-thelioma cases in which it was a defendant.Garlock’s evidence at the present hearingdemonstrated that the last ten years of itsparticipation in the tort system was infect-ed by the manipulation of exposure evi-dence by plaintiffs and their lawyers.That tactic, though not uniform, had aprofound impact on a number of Garlock’strials and many of its settlements suchthat the amounts recovered were inflated.

51. There are a number of elementsthat make asbestos tort litigation unique:

a. Mesothelioma cases are always‘‘death’’ cases with the potential forlarge verdicts. Living plaintiffs areoften given preferential trial settingsthat can increase the amount of thepotential verdict.

b. The 30 to 40 year latency periodbetween exposure and onset of dis-ease means that a plaintiff may havehad many exposures over a long pe-riod of time, many of which were inthe distant past. Also, because dis-ease is not immediate, the victimwas likely not aware of the injury asit occurred. Consequently, theplaintiff may not be able to specifi-cally identify the responsible tort-feasors.

c. As cases are worked up over yearsof practice, plaintiffs’ lawyers devel-op evidence of asbestos exposure atcertain job sites or in certain occupa-tions—from product records, workerdepositions and the like. Conse-quently, in many instances, the expo-sure evidence is under the control ofthe plaintiffs’ lawyer rather than theplaintiff.


d. The Complaint in the typical asbes-tos lawsuit names 30 to 100 defen-dants. In any such case, there arethe primary ‘‘targets’’ and manylesser defendants. The plaintiffmay not even have exposure evi-dence for some of the defendants.

52. One of Garlock’s primary defenseswas to deflect responsibility to other co-defendants. Garlock’s contention was thatits encapsulated chrysotile product did notcause injury. Evidence of the plaintiffs’exposure to other co-defendants productswas essential to its defense and its negoti-ating position.

53. The asbestos tort litigation systemhas evolved through thirty-plus years ofmoves and counter-moves as circum-stances changed and plaintiffs’ lawyerssought to increase recoveries for theirclients and defendants’ lawyers sought tolimit their clients’ losses.

54. In the early years, the primary fo-cus was on claims for lung cancer, asbesto-sis and other diseases. There were someabuses involving mass screenings of poten-tial claimants and bogus diagnoses of thedisease. Since 2000, the focus of litigationhas been on claims for mesothelioma forwhich there is more certainty as to diagno-sis of the disease and to causation.

55. At the outset, the largest partici-pant in the asbestos tort litigation systemwas Johns Manville Corporation (‘‘Man-ville’’). Manville had—by far—the largestshare of the United States asbestos mar-ket as a manufacturer of asbestos insula-tion along with other end-use asbestosproducts and asbestos materials used formanufacture by others. Manville was theprimary defendant in virtually every as-bestos tort complaint and generally drovethe defense of the litigation. In 1982,Manville filed bankruptcy and exited thetort system. After several years, a trustwas established and it re-entered the tort

system and paid claims to the point thefund was exhausted and it had to reorga-nize again. Ultimately, the Johns ManvilleTrust was created and began payingclaims outside the tort system pursuant tothe terms of its trust distribution proce-dures.

56. A number of defendants banded to-gether to attempt to resolve claims as agroup. First, a group known as the As-bestos Claims Facility existed for severalyears and then dissolved. Later, anothergroup (of many of the same companies)formed and was called Center for ClaimsResolution. It dissolved in January 2001,thus removing from the system the singlelargest source of payments.

57. As time passed and resources wereexhausted, various defendants filed bank-ruptcy cases and exited the tort system.In the 1990s companies such as CelotexCorporation, Eagle Picher, and KeaneCorporation filed bankruptcy cases. From2000 to 2005, what Garlock has referred toas the ‘‘bankruptcy wave’’ occurred as anumber of major asbestos defendants filedbankruptcy cases. These included: OwensCorning Fibreboard, Pittsburgh Corning,U.S. Gypsum, Babcock & Wilcox, FederalMogul, Turner & Newell, ArmstrongWorld Industries, and W.R. Grace. Thiswas actually the second such ‘‘wave,’’ butits impact on Garlock was more pro-nounced because it took out of the systemvirtually all of the remaining thermal insu-lation defendants. These were the ‘‘bigdusties’’ as the ACC’s counsel referred tothem. After the first ‘‘wave’’ Garlock stillhad viable insulation co-defendants onwhom to lay off responsibility. But, thesecond ‘‘wave’’ wiped out insulation manu-facturers as co-defendants in the tort sys-tem. The combination of the bankruptciesof the remaining ‘‘big dusties’’ and thedissolution of the Center for Claims Reso-


lution removed from the system most ofthe funding for liability payments.

58. Most significant to Garlock, though,was the fact that often the evidence ofexposure to those insulation companies’products also ‘‘disappeared.’’ This occur-rence was a result of the effort by someplaintiffs and their lawyers to withholdevidence of exposure to other asbestosproducts and to delay filing claims againstbankrupt defendants’ asbestos trusts untilafter obtaining recoveries from Garlock(and other viable defendants). Garlockpresented substantial evidence of thispractice and a few examples will demon-strate the pattern:

a. One of the leading plaintiffs’ lawfirms with a national practice publish-ed a 23–page set of directions for in-structing their clients on how to testi-fy in discovery.

b. It was a regular practice by manyplaintiffs’ firms to delay filing Trustclaims for their clients so that remain-ing tort system defendants would nothave that information. One plaintiff’slawyer stated his practice as seeming-ly some perverted ethical duty:‘‘My duty to these clients is to maxim-ize their recovery, okay, and the bestway for me to maximize their recoveryis to proceed against solvent viablenon-bankrupt defendants first, andthen, if appropriate, to proceedagainst bankrupt companies.’’

c. In 15 settled cases, the court permit-ted Garlock to have full discovery.Garlock demonstrated that exposureevidence was withheld in each andevery one of them. These were casesthat Garlock had settled for largesums. The discovery in this proceed-ing showed what had been withheld inthe tort cases—on average plaintiffsdisclosed only about 2 exposures tobankruptcy companies’ products, but

after settling with Garlock madeclaims against about 19 such compa-nies’ Trusts.

59. The ACC has attempted to mini-mize the significance of Trust claims asbeing somehow disconnected from expo-sure evidence. That argument is belied byexamples of cases where exposure evi-dence was withheld.

60. In a California case involving a for-mer Navy machinist mate aboard a nuclearsubmarine, Garlock suffered a verdict of $9million in actual damages. The plaintiffdid not admit to any exposure from amphi-bole insulation, did not identify any specificinsulation product and claimed that 100%of his work was on gaskets. Garlock at-tempted to show that he was exposed toUnibestos amphibole insulation manufac-tured by Pittsburgh Corning. The plain-tiff denied that and, moreover, the plain-tiff’s lawyer fought to keep PittsburghCorning off the verdict form and evenaffirmatively represented to the jury thatthere was no Unibestos insulation on theship. But, discovery in this case disclosedthat after that verdict, the plaintiff’s law-yers filed 14 Trust claims, including sever-al against amphibole insulation manufac-turers. And most important, the samelawyers who represented to the jury thatthat there was no Unibestos insulation ex-posure had, seven months earlier, filed aballot in the Pittsburgh Corning bankrupt-cy that certified ‘‘under penalty of perjury’’that the plaintiff had been exposed to Un-ibestos insulation. In total, these lawyersfailed to disclose exposure to 22 other as-bestos products.

61. A Philadelphia case involved a la-borer and apprentice pipefitter in the Phil-adelphia shipyard which Garlock settledfor $250,000. The plaintiff did not identifyexposure to any bankrupt companies’ as-bestos products. In answers to writteninterrogatories in the tort suit, the plain-


tiff’s lawyers stated that the plaintiff pres-ently had ‘‘no personal knowledge’’ of suchexposure. However, just six weeks earli-er, those same lawyers had filed a state-ment in the Owens Corning bankruptcycase, sworn to by the plaintiff, that statedthat he ‘‘frequently, regularly and proxi-mately breathed asbestos dust emittedfrom Owens Corning Fiberglas’s Kaylo as-bestos-containing pipe covering.’’ In total,this plaintiff’s lawyer failed to disclose ex-posure to 20 different asbestos productsfor which he made Trust claims. Fourteenof these claims were supported by swornstatements, that contradicted the plaintiff’sdenials in the tort discovery.

62. Another case in New York was set-tled by Garlock for $250,000 during trial.The plaintiff had denied any exposure toinsulation products. After the case wassettled, the plaintiff’s lawyers filed 23Trust claims on his behalf—eight of themwere filed within twenty-four hours afterthe settlement.

63. In another California case, Garlocksettled with a former Navy electronicstechnician for $450,000. The plaintiff de-nied that he ever saw anyone installing orremoving pipe insulation on his ship. Af-ter the settlement, the plaintiff’s lawyersfiled eleven Trust claims for him—seven ofthose were based on declarations that hepersonally removed and replaced insula-tion and identified, by name, the insulationproducts to which he was exposed.

64. In a Texas case, the plaintiff re-ceived a $1.35 million verdict against Gar-lock upon the claim that his only asbestosexposure was to Garlock crocidolite gasketmaterial. His responses to interrogatoriesdisclosed no other product to which he wasexposed. The plaintiff specifically deniedany knowledge of the name ‘‘Babcock &Wilcox’’ and his attorneys represented tothe jury that there was no evidence thathis injury was caused by exposure to Ow-

ens Corning insulation. Garlock’s discov-ery in this case demonstrated that the daybefore the plaintiff’s denial of any knowl-edge of Babcock & Wilcox, his lawyers hadfiled a Trust claim against it on his behalf.Also, after the verdict, his lawyers filed aclaim with the Owens Corning Trust.Both claims were paid—upon the repre-sentation that the plaintiff had handledraw asbestos fibers and fabricated asbes-tos products from raw asbestos on a regu-lar basis.

65. The court permitted Garlock tohave full discovery in only 15 closed cases.In each and every one of those cases itdisclosed that exposure evidence was with-held. For fifteen plaintiffs represented byfive major firms, the pattern of non disclo-sure is the same:

Case Disclosed Not Disclosed1 2 222 7 253 3 234 6 195 2 226 1 147 0 118 5 119 0 2510 0 2011 1 2312 3 2613 1 2514 1 1415 0 4

66. These fifteen cases are just a min-ute portion of the thousands that wereresolved by Garlock in the tort system.And they are not purported to be a ran-dom or representative sample. But, thefact that each and every one of them con-tains such demonstrable misrepresentationis surprising and persuasive. More impor-tant is the fact that the pattern exposed inthose cases appears to have been suffi-ciently widespread to have a significantimpact on Garlock’s settlement practicesand results. Garlock identified 205 addi-tional cases where the plaintiff’s discovery


responses conflicted with one of the Trustclaim processing facilities or balloting inbankruptcy cases. Garlock’s corporateparent’s general counsel identified 161cases during the relevant period whereGarlock paid recoveries of $250,000 ormore. The limited discovery allowed bythe court demonstrated that almost half ofthose cases involved misrepresentation ofexposure evidence. It appears certainthat more extensive discovery would showmore extensive abuse. But that is notnecessary because the startling pattern ofmisrepresentation that has been shown issufficiently persuasive.

67. In contrast to the cases where ex-posure evidence was withheld, there wereseveral cases in which Garlock obtainedevidence of Trust claims that had beenfiled and was able to use them in itsdefense at trial. In three such trials, Gar-lock won defense verdicts, and in a fourthit was assigned only a 2% liability share.

68. The court is also persuaded by theobservations of Garlock’s outside lawyers,Messrs. Turlick (on the East Coast) andGlaspy (on the West Coast) who were in-volved in negotiating and trying cases;and of its General Counsel, Mr. Magee,who was involved in approving settle-ments. They observed that when thethermal insulation defendants left the tortsystem, evidence of exposure to their prod-ucts ‘‘disappeared.’’ That observation iscorroborated by the discovery in this pro-ceeding. They uniformly explained howtheir negotiating and trial strategies wouldhave changed if they had had the exposureevidence that disappeared when the insula-tion defendants exited from the tort sys-tem.

69. The ACC correctly notes that thestandard for making Trust claims is differ-ent than for establishing a tort claim.Trusts permit ‘‘placeholder’’ claims andalso often allow claims based upon working

at a certain location where asbestos expo-sure was presumed. But, relaxed Trustclaiming rules do not explain or exculpatethe ‘‘disappearance’’ of exposure evidencenoted here. Whether ‘‘bare bones,’’‘‘placeholder’’ or ‘‘presumptive,’’ the Trustsrequire some ‘‘meaningful and credible’’exposure evidence to pay a claim. But,most important, while it is not suppressionof evidence for a plaintiff to be unable toidentify exposures, it is suppression of evi-dence for a plaintiff to be unable to identi-fy exposure in the tort case, but then later(and in some cases previously) to be ableto identify it in Trust claims. It is thatpractice that prejudiced Garlock in the tortsystem—and makes its settlement historyan unreliable predictor of its true liability.

70. The effect of withholding exposureevidence extended well beyond the individ-ual cases involved because it was concen-trated in high-dollar ‘‘driver’’ cases. Gar-lock’s settlement of cases was not a seriesof isolated individual events, but rather amore unified practice developed over yearsof dealing with a finite group of plaintiffs’lawyers on a regular basis. Cases oftenwere settled in groups for one sum thatwas to be divided among the group by theplaintiffs’ lawyers without regard for a lia-bility determination in any one case. But,cases of significant potential liability wereoften settled as part of such a group settle-ment. Such ‘‘driver’’ cases would be spe-cifically negotiated with an additionalamount to be spread among the rest of thegroup. Whether settled individually orwith a group or tried to verdict, the casesof large potential liability had a significanteffect on other pending and future cases.Thus, their impact was compounded wellbeyond the individual ‘‘driver’’ case itself.

[3] 71. The withholding of exposureevidence by plaintiffs and their lawyerswas significant and had the effect of un-fairly inflating the recoveries against Gar-


lock from 2000 through 2010. The courtmakes no determination of the propriety ofthat practice. The only thing that is im-portant for this proceeding is that thepractice was sufficiently widespread torender Garlock’s settlements unreliable asa predictor of its true liability. Conse-quently, Garlock’s settlement and verdicthistory during that period does not reflectits true liability for mesothelioma in thepending and future claimants.

72. Another factor also makes Gar-lock’s settlement amounts a dubious reflec-tion of liability. One of the unique aspectsof asbestos injury litigation is its high costto all parties. The cost of expert wit-nesses alone is staggering because of thearray of disciplines needed. A typical trialwould require experts in industrial hygieneand multiple medical disciplines. The ‘‘sci-ence evidence’’ presented at this hearingwas representative of an individual trial inthe tort system and involved seven expertwitnesses, including five with Ph.D. orM.D. degrees.

73. In addition, the time and effort re-quired to prepare and try an asbestos caseis significant. Because of the number ofdefendants and the length of work historyto be examined, the deposition of the plain-tiff often requires weeks. Preparationalso often requires extensive investigativeefforts to determine the products to whichthe plaintiff was exposed during a forty-year work life.

74. Garlock considered its potential lia-bility from an adverse verdict in evaluat-ing cases—certainly the major cases itfaced. But, for Garlock, the expense ofpreparing, trying and winning an asbestosinjury case far exceeded the $75,000 aver-age settlement paid to claimants. Theoverwhelming majority of cases Garlocksettled were done in groups of large num-bers of claims without real analysis of the‘‘liability’’ to any individual claimant. Gar-

lock has consistently maintained that itsproducts did not cause asbestos disease.But, it recognized that factors such as aninability to establish its defenses, a sympa-thetic plaintiff, a sympathetic jury, a par-ticularly effective plaintiff’s lawyer orsome combination of these could result ina large adverse verdict in such ‘‘driver’’cases. But, the overwhelming majority ofcases were settled in groups without re-gard to liability and virtually entirely forcost avoidance. Many cases ultimatelywere simply dismissed.

PRECEDENT FOR ASBESTOS LIA-BILITY ESTIMATION

75. The Bankruptcy Code authorizesestimations of liability in certain situations,see 11 U.S.C. § 502(c) (authorizing estima-tion of any contingent or unliquidatedclaim if fixing or liquidating the claimwould unduly delay a case), but the Codedoes not explain how claims are to beestimated. S. ELIZABETH GIBSON, FED. JUDI-

CIAL CTR., JUDICIAL MANAGEMENT OF MASS

TORT BANKRUPTCY CASES 90 (2005) (‘‘If ajudicial estimation is required, neither sec-tion 502(c) nor any provision of the Bank-ruptcy Rules provides any guidance aboutthe method the judge should use’’). Thiscourt, however, is not the first to attempt aglobal estimation of asbestos liability andhas the benefit of the collected experienceof the courts that have previously conduct-ed estimations. None of these cases iscontrolling here; and none of them dealwith the fact pattern presented here. But,they do form a base on which the court’scrystal ball can rest. The following arebrief descriptions of previous estimations,in chronological order, that this court findsparticularly relevant and some general les-sons that can be learned from the earlieropinions.

Eagle–Picher Industries, Inc.

76. Eagle–Picher filed for bankruptcyprotection in 1991 as a result of claims


filed by workers suffering from diseasesrelated to Eagle–Picher’s asbestos-contain-ing sealant that was used in shipyards inthe 1940s and 1950s. Barnaby J. Feder,Bankruptcy by Eagle–Picher Halts Asbes-tos Settlement, N.Y. TIMES, Jan. 8, 1991,available at http://www.nytimes.com/1991/01/08/business/. Prior to the estimation,Eagle–Picher, the Injury Claimants’ Com-mittee (‘‘ICC’’), and the Future ClaimsRepresentative agreed to value the asbes-tos liability at $1.5 billion and proposed aconsensual plan. In re Eagle–Picher In-dus., Inc., 189 B.R. 681, 682 (Bankr.S.D.Ohio 1995). The Equity Committee,representing the stockholders of Eagle–Picher, and the Unsecured Claimants’Committee opposed the consensual plan,and each party presented an expert and anestimate at the hearing. Id. After hearingthe evidence, the court listed the sevenfactors that it found important to estima-tion. Id. at 690. First, the estimate shouldbe based on the debtor’s history (as op-posed to other asbestos defendants’ histo-ries) without ruling out consideration oftrends. Id. Next, the court should esti-mate the total number of expected claims.Id. at 691. The claims should be catego-rized by disease, occupation, and otherconsiderations. Id. Valuation should bebased on settlement values closest in timeto the date the debtor filed bankruptcy.Id. The indemnity values should increaseover time at a reasonable rate. Id. Thecourt should use a ‘‘lag time gleaned fromthe tort system’’ to accurately predict fu-ture claim values. Id. Finally, a discountrate should be applied to bring the futurenominal value of claims back to the peti-tion date. Id. The court applied thosefactors, decided the ICC’s estimate ofpresent claims and the debtors’ estimate ofthe future claims were the most accurate,and estimated Eagle–Picher’s asbestos lia-bility at $2.5 billion. Id. at 686, 691, 692.The court concluded the opinion by deny-

ing the UCC’s motion to conduct discoveryon a sample of the claimants as unneces-sary in light of the information providedby the debtors’ claims database. Id. at692.

USG Corporation

77. USG, a drywall manufacturer thatused asbestos in its plasters and joint com-pounds, filed its bankruptcy case in 2001.Melita Marie Garza, USG Files for Bank-ruptcy, Chi. Trib., June 26, 2001, availableat http://articles.chicagotribune.com/2001-06-26/. The primary issue in the USGestimation was how to estimate: the debt-ors wanted to challenge the validity ofclaims during the estimation process, whilethe Asbestos Claimants’ Committee andthe Future Claimants’ Representativesought to estimate based on the debtors’pre-petition settlement history. In reUSG Corp., 290 B.R. 223, 224 (Bankr.D.Del.2003). The court noted that thisissue ‘‘may lie at the heart of all asbestosbankruptcies,’’ id., and expressed sympa-thy for each position. Compare id.(‘‘That shareholders’ equity may be extin-guished to compensate those whom theybelieve suffered no tangible harm is a bit-ter corporate pill to swallow.’’), with id.(‘‘It is similarly distasteful medicine to tortclaimants to hear that claims identical tothose which were either litigated to judg-ment or settled in the state tort systemover the course of many years could beeliminated by an imaginative application offederal procedural rules.’’). However, thedispute over the validity of claims focusedon the ‘‘unimpaired’’ claimants and therewas some question as to whether USGwould be insolvent based solely on thecancer claims that were not in dispute, sothe court decided to postpone the expenseof substantive estimation until USG’s sol-vency in regard to the cancer claims couldbe established. Id. at 225–27. The courtalso authorized a lengthy claim form for all


cancer claimants to complete. Id. at 227–29. The parties eventually settled theirestimation dispute. James P. Miller, Ac-cord to Resolve USG Asbestos Claims, Chi.Trib., Jan. 31, 2006, available at http://articles.chicagotribune.com/2006-01-31/.G–I Holdings, Inc. (‘‘G–I I’’)

78. G–I Holdings filed a Chapter 11petition on January 5, 2001. In re G–IHoldings, Inc. (‘‘G–I I ’’), 323 B.R. 583, 587(Bankr.D.N.J.2005). Most of G–I’s asbes-tos liability derived from its indirect sub-sidiary and main asset, Building MaterialsCorporation of America (‘‘BMCA’’), a man-ufacturer of roofing and building products.Id. at 588. Although G–I had been namedin about 500,000 asbestos lawsuits, BMCAclaimed that its products did not containasbestos. Id. & n. 2. The dispute in G–I Iinvolved the method of estimation. Id. at587. While the Official Committee of As-bestos Claimants wanted to estimate G–I’s‘‘asbestos liability in the aggregate’’ usingthe company’s pre-petition claims resolu-tion history, the debtor proposed to dealwith the ‘‘asbestos liquidation crisis’’ byapplying a ‘‘medical matrix’’ and a ‘‘claimsliquidation committee.’’ Id. at 587, 590.Under the debtor’s proposal, the claimsliquidation committee, appointed by thedebtor, would determine whether eachclaimant had an allowed claim under aprocess using several vague, undefinedstandards. Id. at 590–97. The OfficialCommittee of Asbestos Claimants pro-posed a more traditional approach to esti-mation and claimed that G–I’s proposalwas an improper liquidation of claims thatviolated the claimants’ rights to jury trialsrather than an estimation. Id. at 597–98,600. The court rejected G–I’s argumentthat claimants did not have constitutionalor statutory jury trial rights, id. at 603–16,but held that courts can ‘‘disallow’’ invalidclaims without ‘‘liquidating’’ them, id. at613, and allowed G–I the opportunity tomove for summary judgment on some is-

sues on a ‘‘class-wide consolidated basis’’pursuant to Federal Rule of BankruptcyProcedure 7042, id. at 625. The courtdecided to estimate pursuant to the histor-ical claims-resolution approach advocatedby the Official Committee of AsbestosClaimants without deciding on all of thedetails of the future estimation. Id. at622–24.

Owens Corning

79. Owens Corning was a high-profileasbestos defendant because of its widelydistributed and very ‘‘dusty’’ insulationproduct, Kaylo. Owens Corning v. CreditSuisse First Boston, 322 B.R. 719, 722(D.Del.2005). Before seeking bankruptcyprotection in October 2000, Owens Corningresolved more than 330,000 claims. Id. at719, 722. The parties disputed how thedebtor’s liability should be estimated andthe number and validity of future claims;however, the dispute was between the As-bestos Claimants and the Future Repre-sentative, on one side, and the banks andbondholders, on the other, and OwensCorning did ‘‘not argue for any particularvaluation.’’ Id. at 721. The AsbestosClaimants and the Future Representativewanted to estimate using ‘‘the value of theclaims in the tort system,’’ while the banksproposed to value claims based on theprojected recovery from a trust in thefuture. Id. The court agreed with theclaimants’ method because claims must bevalued as of the petition date relying onstate law, which ‘‘necessarily means thatthe claims are to be appraised on the basisof what would have been a resolution ofthe claims in the absence of bankruptcy.’’Id. at 721–22. The court, however, did notsimply extrapolate from historical valuesbecause the banks showed factors, such asthe availability of punitive damages in thetort system, marketing for claimants thathad already reached ‘‘its maximum im-pact,’’ and pre-petition changes in asbestos


litigation, that could have an impact onvalues in the future. Id. at 722–25. Thecourt also noted that ‘‘since mathematicalprecision cannot be achieved in the predic-tion being undertaken, it is important thatwe not pretend to have achieved mathe-matical accuracy.’’ Id. at 725. Four ex-perts testified. Id. at 721. The courtdiscounted the testimony of the banks’ ex-pert because he disagreed with the otherexperts on many issues and adopted everyassumption that would decrease his esti-mate. Id. at 725. The court also discount-ed the estimate for the Asbestos Claimantsbecause its expert assumed that claimswould continue to increase and did notaccount for changes in asbestos litigation.Id. The court decided that the most accu-rate estimate was between the estimates ofthe Future Representative’s expert ($8.15billion) and the debtor’s expert ($6.5–6.8billion) and set Owens Coming’s liability at$7 billion. Id.Federal–Mogul Global, Inc.

80. Like Owens Corning, Federal–Mogul was a high-profile asbestos defen-dant prior to filing its bankruptcy petitionon October 1, 2001. In re Federal–MogulGlobal, Inc., 330 B.R. 133, 136–38 (D.Del.2005). Federal–Mogul’s liability camefrom several sources, including Limpet, aspray-on product made of ‘‘pure’’ amositeor crocidolite asbestos and used for fire-proofing and insulation; Keasby and Mat-tison Co., a ‘‘mini-Johns Manville’’ formersubsidiary that sold a wide variety of as-bestos products; and ownership of asbes-tos mines in Africa and Canada. Id. Inthis case, the estimation dispute pitted thepersonal injury claimants, including theOfficial Committee of Asbestos Claimantsand the representative of future claimants,against property damage claimants. Id. at135. Federal–Mogul did not appear at theestimation hearing. Id. at 135 n. 2. Priorto estimation, various creditor committees,including the personal injury claimants,

but not the property damage claimants,agreed to a ‘‘Central Deal’’ that involved anegative or inverse correlation betweenthe personal injury claims and the non-personal injury claims (i.e., a larger per-sonal injury estimate would result in thepayment of a lower percentage of the non-personal injury claims). Id. at 136. Theexperts agreed on a basic formula for esti-mating based on Federal–Mogul’s claims-resolution history (multiplying the numberof claims by the average settlement andthe percent of claims historically paid), buteach expert’s assumptions about incidenceand propensity to sue, among other things,led to a wide range of projected liability.Id. at 144–49. The court decided thatestimation should focus on Federal–Mog-ul’s historical practices rather than discov-ery of individual claims and that ‘‘the onlysound approach [was] to begin with what[was] known; namely, the data in the[debtors’] Database.’’ Id. at 155, 157.The court discussed and endorsed the Ea-gle–Picher framework and factors for esti-mation. Id. at 157. The court concludedthat the methodology of the personal inju-ry claimants’ expert, Dr. Peterson, moreclosely adhered to the Eagle–Picher re-quirements (while noting some disagree-ment with Peterson’s increasing propensi-ty model) and estimated Federal–Mogul’sasbestos liability in the United States at $9billion, in between Peterson’s two esti-mates of $8.2 billion and $11 billion. Id. at164.

G–I Holdings, Inc. (‘‘G–I II’’)

81. The Bankruptcy Court for the Dis-trict of New Jersey revisited estimationissues in the G–I Holdings case approxi-mately 18 months after G–I I in order tosettle disputes over estimation methodolo-gy and related discovery. In re G–I Hold-ings, Inc. (‘‘G–I II ’’), 2006 WL 2403531, at*1 (Bankr.D.N.J. Aug. 11, 2006). G–I be-lieved the historical data in its claims data-


base was only the starting point for theestimation and sought extensive discoveryof a random sample of 2000–2500 individu-al claimants. Id. at *4. G–I’s discoveryproposal included a neutral panel of medi-cal experts that would review the medicalevidence and determine causation. Id. at*9. The Official Committee of Asbestosclaimants and the Legal Representative ofPresent and Future Holders of Asbestos–Related Demands wanted to rely primarilyon the claims database and argued thatdiscovery of individual claimants wouldtrigger the claimants’ due process rights.Id. at *5. The claimants’ representativesalso urged the court to reconsider its pre-vious ruling that G–I could move for class-wide summary judgment during the esti-mation process. Id. at *14. The courtdeclined to select a particular estimationmethodology and decided to allow limiteddiscovery of the claimants but rejectedmost of the ‘‘laundry list’’ proposed by G–I, including the medical panel. Id. at *19–20, *23. The court did not reconsider itsdecision to allow motions for summaryjudgment but did acknowledge concernsabout due process and the high burden G–I would have to overcome. Id. at *20.W.R. Grace & Co.

82. W.R. Grace filed its bankruptcy pe-tition on April 2, 2001 in order to deal withextensive asbestos liability from its distri-bution of chemicals and building materialsand ownership of contaminated mines.Michael Brick with Maureen Milford,Grace Files for Chapter 11, Citing Cost ofAsbestos Suits, N.Y. TIMES, Apr. 3, 2001,available at http://www.nytimes.com/2001/04/03/; Sonja Lee, Ground Zero: Resi-dents Still Counting Costs of Mining Zo-nolite Mountain, GREAT FALLS TRIB., MAR.

8, 2004, available at http://www.greatfallstribune.com/. A major issue in the casewas whether Grace bore any liability forproperty damage caused by its Zonoliteattic insulation. See In re W.R. Grace &

Co., 355 B.R. 462, 466 (Bankr.D.Del.2006)(noting the large number of potentialclaims from the 3–30 million homes withZonolite). Grace used vermiculite, a non-asbestos mineral, in its Zonolite, but themine in Libby, Montana where Grace ob-tained the vermiculite was contaminatedwith asbestos. Id. at 468. Grace admittedthat Zonolite contained a small amount ofasbestos that could be released whenhomeowners disturbed the insulation butargued that the product did not create anunreasonable risk of harm sufficient tomaintain liability for property damage un-der consumer protection statutes. Id. at468, 470, 473. The property damageclaimants believed asbestos contaminationand release was sufficient for liability. Id.at 468. The court reviewed the relevantepidemiology and regulatory standardsand agreed with Grace that Zonolite didnot create an unreasonable risk of harmwhile reserving judgment on other theo-ries of liability. Id. at 468, 482–94.

Specialty Products

83. The most recent asbestos estima-tion occurred in In re Specialty ProductsHolding Corp., Nos. 10–11780, 10–11779,2013 WL 2177694 (Bankr.D.Del. May 20,2013). Specialty Products sought bank-ruptcy protection on May 31, 2013, pri-marily due to asbestos liability from a ‘‘do-it-yourself’’ joint compound product mar-keted by its Bondex subsidiary. Id. at 3–7, 22. The debtors argued that theirclaims resolution history did not accurate-ly represent their actual legal liability be-cause the settlement amounts spiked in2000 due to the bankruptcies of other de-fendants, they had less liability becausetheir joint compound only contained theless potent chrysotile type of asbestos,there was no evidence of causation pre-sented at the estimation trial, and theirpre-petition settlements could not repre-sent liability because of their small market


share. Id. at 7, 9, 11 n. 24, 16–17. Thecourt declined to follow Specialty Prod-ucts’s ‘‘novel approach’’ in favor of themore traditional approach advocated bythe Asbestos Creditors’ Committee andthe Future Claimants’ Representative,holding that ‘‘[i]n estimation proceedingsthe Court is to determine [the debtors’total liability for present and future claimscaused by their asbestos products] basedon the Debtors’ tort system claiming histo-ry.’’ Id. at 1, 3. The court set the debtors’total liability at $1.166 billion. Id. at 50.

Lessons Learned

84. While there are significant differ-ences in the underlying facts and the pro-cedural approaches in each prior estima-tion, the court recognizes several generalprinciples that will help decide the issuesbefore the court in this case.

85. Fair Estimates: Every court thathas estimated the asbestos liability of adebtor has attempted to reach a fair esti-mate based on the particular facts at issue.See, e.g., Federal–Mogul, 330 B.R. at 137(noting that the purpose of estimation is todetermine the amount of a debtor’s asbes-tos liability rather than to determine theviability of a proposed plan of reorganiza-tion). Courts have recognized the validityof the competing concerns of the litigantsand attempted to reach the proper resolu-tion. See USG, 290 B.R. at 224; G–I I,323 B.R. at 623 (‘‘On one hand, thousandsof innocent individuals may have been le-gitimately harmed by the products manu-factured by the Company’s predecessors,and these individuals should at the veryleast be afforded the opportunity to seekcompensation for their damages. On theother hand is the real possibility that aonce viable company will become extinct(with its own attendant repercussions suchas loss of jobs, loss of business for third-party suppliers, and loss of shareholderequity) based upon the insurmountable

personal injury claims facing the estate.’’).Even in cases where some of the partieshave negotiated a plan with its own esti-mate of asbestos liability, courts recognizethat they should make their own estimatesof liability (instead of relying on the esti-mate in the proposed plan). See, e.g., Ea-gle–Picher, 189 B.R. at 682.

86. Debtor’s Role in Estimation: Esti-mations in asbestos bankruptcies are fre-quently conducted after the parties (orsome of the parties) have agreed to a planof reorganization that includes a consensu-al estimate of liability. See, e.g., id. (dis-cussing the plan and estimation of liabilityproposed jointly by the debtors, the InjuryClaimants’ Committee, and the FutureClaims Representative). It is not unusualfor a debtor to abstain from participatingin estimation disputes among other par-ties. See, e.g., Federal–Mogul, 330 B.R. at135 & n. 2; Owens Corning, 322 B.R. at720–21 (noting that the estimation battlepits the Asbestos Claimants Committeeand the Future Claims Representativeagainst the ‘‘Banks’’ and ‘‘Bondholders’’while the debtor ‘‘does not argue for anyparticular valuation’’). Although the not-infrequent lack of participation by thedebtor is an interesting aspect of priorestimation proceedings, there are alsomany cases where the debtor does litigateits estimated liability. See, e.g., SpecialtyProducts, slip op. at 1–2 (debtors estimatenet present value liability at $300–575 mil-lion while the Asbestos Creditors’ Commit-tee and the Future Claimants’ Representa-tive assert much higher estimates ($1.255billion and $1.1 billion, respectively));Grace, 355 B.R. at 464–65; G–I I, 323 B.R.at 587; USG, 290 B.R. at 224.

87. Type of Asbestos Products: In thiscase, the Debtors argue that their prod-ucts produce a small dose of a less potentform of asbestos. The Debtors’ argumentfocuses on disputing the causation element


necessary to establish their liability for themesothelioma suffered by the claimants.Most historical asbestos estimations didnot involve low-dose producers that disput-ed causation. In some cases, the types ofproducts produced by the debtors wereapparently not an important issue, as thecourts did not even describe the productsproduced by the debtors. See, e.g., USG,290 B.R. at 223–229; Eagle–Picher, 189B.R. at 681–692. In other cases, the typesof products produced by the debtors re-leased higher amounts of asbestos. See,e.g., Federal–Mogul, 330 B.R. at 137; Ow-ens Corning, 322 B.R. at 722 (‘‘[OwensComing’s] principal asbestos-containingproduct, a high-temperature insulation ma-terial called Kaylo, was very widely dis-tributed, and was particularly ‘dusty’—i.e.,capable of widespread air—borne distribu-tion.’’). Nevertheless, there is great vari-ety in the history of asbestos litigation,and the court does not mean to suggestthat it is the first to consider the low-doseand lack of causation arguments. See, e.g.,Specialty Products, slip op. at 9, 11 n.24(reviewing debtors’ arguments regardingfiber type and causation); Grace, 355 B.R.at 468; USG, 290 B.R. at 225 (discussingthe debtors’ arguments that many claim-ants do not have valid claims, claimantscannot prove exposure to their products,and chrysotile asbestos does not causemesothelioma); Eagle–Picher, 189 B.R. at687 (rejecting a distinction based on fibertype).

88. Use of Debtor’s Claims ResolutionHistory: Most prior asbestos estimationshave used the debtor’s pre-bankruptcy his-tory of resolving claims through litigationand settlements to estimate claims in thesubsequent bankruptcies. See, e.g., Spe-cialty Products, slip op. at 3; Eagle–Pich-er, 189 B.R. at 691 (‘‘Valuation of claimsshould be based upon settlement valuesfor claims close to the filing date of thebankruptcy caseTTTT’’). Nevertheless, no

court has held that analysis of the debtor’sclaims resolution history is the exclusivemeans to estimate liability. In fact, courtsin prior cases have analyzed the merits ofclaims at estimation. See Grace, 355 B.R.at 493–94; USG, 290 B.R. at 227 (allowinga merits-based challenge to claims duringestimation). Other courts have concludedthat ‘‘a bankruptcy court has discretion todetermine the appropriate method of esti-mation in light of the particular circum-stances of the bankruptcy case before it.’’G–I II, 2006 WL 2403531, at *2 (citing Inre Trident Shipworks, Inc., 247 B.R. 513,514 (Bankr.M.D.Fla.2000)); In re Thom-son McKinnon Sec., Inc., 143 B.R. 612,619 (Bankr.S.D.N.Y.1992)); see also Fed-eral–Mogul, 330 B.R. at 155 (‘‘Congressintended the [estimation] procedure to beundertaken initially by the bankruptcyjudges, ‘using whatever method is bestsuited to the particular contingencies atissue’ ’’ (quoting Bittner v. Borne Chemi-cal Co., 691 F.2d 134, 135 (3d Cir.1982))).Again, however, the court does not wish tostretch this conclusion beyond its supportin the prior opinions and admits that sev-eral courts have decided that the claimsresolution approach is best suited to as-bestos estimation. See, e.g., SpecialtyProducts, slip op. at 1 (‘‘In estimation pro-ceedings the Court is to determine [thedebtors’ liability for present and future as-bestos claims] based on the Debtors’ tortsystem claiming history.’’); Federal–Mog-ul, 330 B.R. at 155 (stating that the esti-mation focused on ‘‘historical claims-han-dling practices’’ rather than ‘‘discovery ofindividual claims’’ because ‘‘[t]o do other-wise would eviscerate the purposes of theestimation process and place additional fi-nancial burdens on the very trust whichthe Court [was] trying to create’’); Eagle–Picher, 189 B.R. at 686 (deciding that theanswer to the question of whether to usethe closed pre-petition claims to value the


open pre-petition claims was ‘‘inescapablyin the affirmative’’).

ESTIMATION OF PRESENT AND FU-TURE MESOTHELIOMA CLAIMS

89. The purpose of the present hearingis to determine a reasonable and reliableestimate of Garlock’s liability for presentand future mesothelioma claims. The par-ties have presented two wholly differentapproaches to accomplishing that.

90. The ACC and FCR offered a ‘‘set-tlement’’ approach to estimation by way ofstatistical extrapolation from Garlock’s his-tory of resolution of mesothelioma claims.Fundamental to this approach is an ap-praisal of what would have been a fairresolution of claims in the absence ofbankruptcy. Owens Corning, 322 B.R. at722; Federal–Mogul, 330 B.R. at 158.The focus of this approach is on Garlock’s‘‘historical claims-handling practices andexpert testimony on trends and develop-ments in the asbestos tort system.’’ Fed-eral–Mogul, 330 B.R. at 155–56. Thismethodology has been used by a numberof courts in estimation of asbestos liability:In re Armstrong World Indus., Inc., 348B.R. 111 (D.Del.2006); Owens Corning v.Credit Suisse Boston, 322 B.R. 719 (D.Del.2005); In re Federal–Mogul, 330 B.R. 133(D.Del.2005); In re Eagle–Picher Indus.,Inc., 189 B.R. 681 (Bankr.S.D.Ohio 1995).In each of these cases, however, the esti-mation was not contested by the debtor.Rather, the debtor and claimants hadagreed on the estimate, and it was beingchallenged by other creditors.

91. Garlock offered instead a ‘‘legal lia-bility’’ approach to estimation that focusedon the merits of claims. It forecast anestimation calculated by projecting thenumber of claimants based upon occupa-tion groups and predicting the likelihood ofrecovery for separate groups to reach anaggregate damage amount, and then re-ducing that by other sources of recovery.

Cases supporting a merits-based approachinclude: In re W.R. Grace & Co., 355 B.R.462 (Bankr.D.Del.2006); In re G–I Hold-ings, 323 B.R. 583 (Bankr.D.N.J.2005); Inre USG Corp., 290 B.R. 223 (D.Del.2003).

92. There is a clear comfort in relyingon a defendant’s own history of valuingclaims in the tort system, but a divorcefrom that process is required in this case.The court has concluded that it cannotadopt the settlement approach of the ACCand FCR for two primary reasons: First,the settlement history data does not accu-rately reflect fair settlements because ex-posure evidence was withheld. While thatpractice was not uniform, it was wide-spread and significant enough to infectfatally the settlement process and historicdata. It has rendered that data uselessfor fairly estimating Garlock’s liability topresent and future claimants.

93. Second, Garlock’s settlement datarepresents insignificant part cost avoid-ance rather than its liability. The bank-ruptcy estimation process requires a pure(or more academic) analysis of Garlock’s‘‘liability’’ to claimants; whereas the tortsystem produced a settlement based bothliability and avoidable defense costs.Here, the court’s mission is to determineGarlock’s liability to claimants—and datathat includes avoided defense costs doesnot prove that. By analogy, following the‘‘settlement’’ approach would be like valu-ing a trade creditor’s claim by the cost ofcollection rather than the amount of thedebt. Here claimants’ claims must be esti-mated as of Garlock’s petition date andpursuant to state law. But, the propermeasure is of its liability and not simply itsclaims resolution history. The claims res-olution history may be an appropriatemeasure only if it reliably reflects thedebtor’s liability, and here it does not.

94. Both the ACC’s and the FCR’s ex-perts based their estimations solely on


Garlock’s historical settlement data. Thatdata does not reliably reflect Garlock’strue liability. That fundamental error ren-ders their estimates fatally flawed and ofno value to this proceeding. The ACC andFCR experts had Garlock’s Analytical Da-tabase of fresh data available to them, butdid not use it in any way for their esti-mates. Garlock has raised a number ofcriticisms of the estimations by the ACCand FCR, but it is not necessary to consid-er them because of the fundamental unreli-ability of the underlying data used in theirestimates.

[4] 95. The court has concluded thatthe approach offered by Garlock producesa reasonable and reliable estimate of itsliability to present and future claimants.That estimate is based on econometricanalysis of current data produced in dis-covery by the representatives of a sizeablesample of the current claimants and ap-plied parameters based on observation andaccepted measures. Although it is a ‘‘pro-jection,’’ it appears to be based on reason-able factors and to be designed to producean accurate estimate.

96. Garlock’s estimate was derived inlarge part from its Analytical Database.That database was constructed primarilyfrom questionnaires (‘‘PIQ’s’’) and two sup-plemental questionnaires sent to the cur-rent claimants’ law firms.

97. The responses were far from com-plete, but as the ACC described, the re-sponse was ‘‘robust.’’ This was a sizeablediscovery request (or social science survey)and produced a wealth of data. The dataincluded: job histories, asbestos exposureinformation relating to Garlock’s andthird-parties’ products, claims and recover-ies made in the tort system and claimsmade to Trusts. It was supplementedwith data from certain Trusts and fromsome bankruptcy cases. The result wasthe most extensive database about asbes-

tos claims and claimants that has beenproduced to date. It is the most currentdata available and is the only data thataccurately reflects the pool of claimsagainst Garlock. It represents a reason-able and representative sample of claimsagainst Garlock.

98. Using in large part Garlock’s Ana-lytical Database its expert, Dr. CharlesBates, calculated his estimate of its liabili-ty based on a number of factors: the com-pensatory award on average claimantmight receive from all defendants; Gar-lock’s potential share of such an award;the likelihood of the claimant’s recovery;the number of present and future claim-ants who claim exposure to Garlock prod-ucts; and the discount rate.

99. The total compensatory awardswere calculated based upon over 1,000publicly reported mesothelioma verdicts.Adjustment was made by regression analy-sis to account for known selection biasbased on three variables: jurisdiction,claimant’s age and claimant’s life status.Adjustment was necessary because thelargest verdicts tended to result for youn-ger, living plaintiffs in certain favorablejurisdictions. These are reasonable ad-justments that were necessary to conformthe observed verdicts to a representativesample.

100. Garlock’s potential share ofawards was calculated based largely onexposure information provided in the PIQsand recovery information provided in aSupplemental Settlement Payment Ques-tionnaire. Because of the variety of liabili-ty regimes in different states, separatecalculations were made for joint-and-sever-al, several and hybrid jurisdictions.

101. The number of responsible partieswas estimated from exposures identifyinga sample of 1300 pending and resolvedclaimants. This large sample was demon-


strated to be representative of the pool ofclaimants involved here. Dr. Bates deter-mined that the typical claimant alleges ex-posure to products of 36 parties: 13 tortdefendants (plus Garlock) and 22 Trusts.This number was derived from the actualclaims against Garlock. Four of the 22Trust ‘‘claims’’ were derived from ballotscast in pending bankruptcies, but it is afair inference that a claimant who casts aballot to vote on a reorganization Plan willultimately make a claim against the Trustthat results from that Plan.

102. The amount of total recoverieswas based on 850 questionnaire responses.This sample was tested and demonstratedto be representative. The total recoveryby a typical claimant was estimated to bebetween $1 and $1.5 million, including anaverage of $560,000 in tort recoveries andabout $600,000 from 22 Trusts.

103. Garlock’s share of that total wascalculated as follows for differing jurisdic-tions: for several liability jurisdictions, thetotal was divided by 36; for joint-and-several jurisdictions, the Trust recoverieswere deducted; and for hybrid jurisdic-tions, a combination of both was made.This factor was based on an assessment ofover 1,000 claim files and fairly representsthe distribution of claims among the variedstate liability regimes.

104. The likelihood of a plaintiff’s suc-cess was taken directly from Garlock’smesothelioma verdict history during thedecade of the 1990s. That rate was 8%.Further, Dr. Bates tested the validity ofthat benchmark and found it reliable. Be-cause of the withholding of evidence notedabove, the period after 2000 would not be afair or representative period. Garlock’sverdict experience during the period priorto that is a fair measure, and, being empir-ical data, yields the appropriate rate.

105. The number of pending claimsagainst Garlock was based on the PIQ

responses that indicated exposure to aGarlock asbestos product. This numberwas less than putative ‘‘claimants’’ herebecause that number represents peoplewho named Garlock in a tort system com-plaint (as one of 30–100 defendants). Thenumber used by Dr. Bates includes onlythose who asserted exposure to a Garlockproduct in the PIQ’s submitted in thiscase. Such exposure is a requirement torecovery, so it is appropriate to value atzero the claims of those ‘‘claimants’’ whoasserted no exposure to Garlock products.The PIQ responses and the Garlock Ana-lytical database are the freshest and mostreliable data available, and the appropriatedata for this calculation. In this instance,the historic claiming data is stale and notaccurate.

[5] 106. Dr. Bates calculated theamount that actual pending claimantscould expect to recover from Garlock to beless than $25 million. The court finds $25million to be a reasonable and reliableestimate of Garlock’s aggregate liability topending claimants.

[6] 107. Dr. Bates estimated the fu-ture claims based upon the Bates Whitemodel predicting the future incidence ofmesothelioma and the estimate of the por-tion of that number who could have beenexposed to Garlock products based uponfive ‘‘contact groups’’ developed by anotherGarlock witness, Mr. Henshaw.

108. The Bates White incidence modelis an updated version of the Nicholsonmodel (and the Nicholson KPMG model)which has been shown to be highly accu-rate. The Bates White model was demon-strated to be an acceptable method of pre-dicting future incidence of mesotheliomathat is as likely to be as accurate as theNicholson model. In fact, the Bates Whitemodel is more inclusive than other models

97IN RE CITY OF DETROIT, MICH.Cite as 504 B.R. 97 (Bkrtcy.E.D.Mich. 2013)

because it includes both occupational andnon-occupational exposure.

109. John Henshaw is a certified indus-trial hygienist and former U.S. AssistantSecretary of Labor for OSHA. He re-viewed the PIQs and other evidence inorder to evaluate the extent to whichclaimants who worked in various job cate-gories were exposed to asbestos fromgaskets. Based on that research, he as-signed various job categories into separate‘‘exposure groups’’ with similar likelihoodof exposures to asbestos from gaskets.These groupings were based on empiricalevidence from claimants and appear to bea valid and reliable assessment of probableexposure.

110. Since Garlock was simply one of anumber of gasket producers, Dr. Batesfurther estimated the portion of possiblefuture claimants who were exposed to Gar-lock products using percentages from thePIQs.

111. After applying these factors andvaluing the claims in the manner describedpreviously, Dr. Bates discounted his esti-mate to present value using the Congres-sional Budget Office’s long-term inflationand risk free rates. That is an appropri-ate and acceptable discount rate in thesecircumstances.

112. Dr. Bates determined that Gar-lock’s future claimants could expect to re-cover a net present value of less than $100million. The court finds that $100 millionis a reasonable and reliable estimate ofGarlock’s liability to future mesotheliomaclaimants.

113. For all of the reasons stated here-in, the court has concluded that Garlock’saggregate liability for present and futuremesothelioma claims totals $125 million.

It is therefore ORDERED that the esti-mate of the debtors’ aggregate liability for

present and future mesothelioma claims is$125 million.

,

In re CITY OF DETROIT,MICHIGAN, Debtor.

No. 13–53846.

United States Bankruptcy Court,E.D. Michigan,

Southern Division.

Dec. 5, 2013.

Background: Parties objected to city’seligibility to be Chapter 9 debtor, and towhether its Chapter 9 petition had beenfiled in ‘‘good faith.’’

Holdings: The Bankruptcy Court, StevenRhodes, J., held that:

(1) bankruptcy court, even as non-Article-III court, had constitutional authorityto finally determine all issues thatwere raised in context of resolving ob-jections to city’s eligibility for Chapter9 relief, including constitutionality ofstate statute pursuant to which emer-gency manager caused city to file forChapter 9 relief;

(2) Chapter 9 of the Bankruptcy Code didnot violate the Tenth Amendment, ei-ther on its face or as applied;

(3) Michigan’s emergency manager lawdid not, as predicted by bankruptcyjudge in Michigan, violate the State’sconstitutional right of referendum;

(4) Michigan law did not, as predicted bybankruptcy judge in Michigan, violatePension Clause of the Michigan Consti-tution;

(5) filing of Chapter 9 petition on city’sbehalf deprived Michigan state court of

in re garlock sealing technologies, llc 71 · in re garlock sealing technologies, llc73 cite as 504...

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