The MacNeil/Lehrer Report; Asbestos Bankruptcy

JIM LEHRER: Good evening. A group of plaintiffs' lawyers searched today for a way to stop the Manville Corporation's use of bankruptcy as a way out of the courtroom. The attorneys, meeting in New York City, represent the thousands of former asbestos workers or their families who have sued Manville and other manufacturers claiming damages for health problems suffered while working with or around asbestos. Manville, one of the nation's largest corporations, announced Thursday that such lawsuits were overwhelming them, and filed voluntary bankruptcy under Chapter 11 of the Federal Bankruptcy Act. Such action keeps the company functioning, but freezes litigation. Lawyers representing the claimants charge Manville is thus perverting the bankruptcy laws in an attempt to escape its liability for asbestos damage by pressuring the federal government to bail them out. Manville officials say the burden of compensating asbestos victims should be shared by the government since much asbestos work in the past involved federal projects. Manville also charges that the litigation way of resolving these claims has resulted in most of the money going to the lawyers, not the victims, a fact, the Washington Post said editorially today, revealed the American legal system at its worst. Tonight we look at the asbestos dilemma. Robert MacNeil is off; Charlayne Hunter-Gault is in New York. Charlayne?

CHARLAYNE HUNTER-GAULT: Jim, if there is any one villain we can positively identify so far, it is asbestos. The fire-retardant, anti-corrosive mineral has been called by the experts "the greatest single source of occupational cancer." Researchers at New York's Mount Sinai Hospital contend that at least 5,000 cancer deaths a year can be specifically linked to asbestos, a rate they expect to continue into the next century. Experts also say that more than 10 million people may have been exposed to asbestos fibers on the job in the past 40 years. Those most affected by the mineral are those most directly exposed, especially workers in asbestos manufacturing plants, construction sites and shipyards where it is used for insulation. In fact, many asbestos manufacturers argue that the government should pay its fair share of liability because it was in government shipyards during World War II that many of the victims were exposed. A lawyer who represents some 700 people with asbestos claims is here now to give us an update on today's meeting in New York, as well as some reaction to the Manville action. He is Fred Baron of the law firm of Frederick M. Baron Associates of Dallas. In 1973, Mr. Baron filed one of the nation's first asbestos cases, and won $20 million for a group of workers in Tyler, Texas. Mr. Baron, did the meeting in New York today produce a plan to fight the Manville move?

FRED BARON: Well, in fact, the meeting is still going on. This is a very complicated technical-legal problem.And we are resolved to take whatever action is appropriate to properly represent out clients in the situation.

HUNTER-GAULT: And these lawyers flew in from all over -- lawyers representing asbestos claimants flew in from all over the country?

Mr. BARON: Yes, they did.

HUNTER-GAULT: What was the sense -- was there any sense at this point of the direction they're going in? I think I read this afternoon that one of the things you were contemplating was hiring a bankruptcy lawyer of your own to go up against Manville's?

Mr. BARON: Yes, that's correct. However, the great sense that I can feel from the meeting is one of outrage that something like this could happen in our legal system. We believe that the use of the bankruptcy laws under the circumstances is entirely inappropriate, and in effect is fraudulent.

HUNTER-GAULT: Why?

Mr. BARON: Johns-Manville, or the Manville Corporation, is not a bankrupt company. Using their figures, the company has a net worth -- which means assets beyond liabilities -- of $1,100 million. Moreover, it is a liquid company that is capable of raising funds to continue its own business and to continue this litigation and pay the claims that they owe.

HUNTER-GAULT: So you don't but the argument that they made that the future claims would indeed put them into financial trouble if they didn't work out something now?

Mr. BARON: They have used what I can only call new math to place themselves in the jurisdiction of the bankruptcy court, as they claim there are now 16,000 or so claims against them.They can handle those claims with their current assets. They have hired a firm, however, that has projected that there will be another 35,000 claims filed against them. We have found no basis for those figures, and it is upon those figures that they are claiming that they are in fact an insolvent company. But those claims have not been filed.

HUNTER-GAULT: And you think the 35,000 might be a fiction or a fantasy?

Mr. BARON: It may well be a fiction, and moreover, they have not told us over what period of time. This might be over the next 100 years.

HUNTER-GAULT: Well, how will this action on the part of Manville affect your clients and the clients of those lawyers' asbestos cases?

Mr. BARON: Well, under the bankruptcy law, specifically Chapter 11 of the Bankruptcy Act, automatically, upon filing of a petition in the bankruptcy court, all litigation against the debtor -- in this case, the Manville Corporation -- is stayed.

HUNTER-GAULT: Stopped.

Mr. BARON: In other words, these people that have been waiting two or three or four years to pursue their claims, whose cases are now coming to trial, will not have the right to pursue these claims until the bankruptcy proceeding or the stay is lifted.

HUNTER-GAULT: And that could take any amount of time?

Mr. BARON: It may well.

HUNTER-GAULT: Why do you think Manville took this route?

Mr. BARON: I think they did it for three reasons. The first reason is that they feel like Congress and the people of the United States should come in and bail them out. They are pointing the finger in these cases at everyone but themselves, and they are trying to put pressure on Congress to pass some nature of a bailout bill to get them out of this. Secondly, they wanted to delay the claims to put more pressure on these poor people, who are waiting for their claims to be heard, to be compensated. As a third factor, we believe that it also --

HUNTER-GAULT: You mean, excuse me, pressure to make them settle?

Mr. BARON: To make them either settle cheaply or to then decide that they should take a lesser remedy through a congressional enactment.

HUNTER-GAULT: I see.

Mr. BARON: Third, we believe they are also trying to pressure their insurance carriers.

HUNTER-GAULT: In a word, do you expect more companies to follow the approach of Manville?

Mr. BARON: It's hard to tell. This is a very drastic step. When a company files for bankruptcy, they essentially place the hands of the company in other hands themselves. In other words, the company will now be essentially a public company, and we will be able to determine what has been going on with the Johns-Manville Company over all these years.

HUNTER-GAULT: So it's difficult to say what this will open up?

Mr. BARON: It's hard to say. We're not certain that this is going to be a successful move. We certainly are going to do everything possible to stop it.

HUNTER-GAULT: All right. We'll come back. Jim?

LEHRER: Response now from the Manville Corporation in the person of G. Earl Parker, the company's senior vice president for law and public affairs. Mr. Baron says your use of the bankruptcy courts is fraudulent; your company is not in fact bankrupt.

G. EARL PARKER: Nothing could be further from the fact, Jim. Let me just say at first, though, that we recognize this as a public health disaster of the most immense proportions. Not only that, but for the individual involved, it is a personal tragedy, a very intense personal tragedy. That tragedy is made worse when the settlement or judgment is finally received, and only 20 or 30 percent of it is retained by the victim or his family, the rest going to attorney's fees and litigation expenses. We think that's not a very sensible way to handle this problem. As far as this being an escape or way to get around our problems, no, it's not. Chapter 11 was really an action that was forced on us by events and by the law and accounting rules. We are a publicly held company, Jim, and we have to abide by SEC requirements and the securities laws.

LEHRER: But, Mr. Baron says you have 16,500 cases pending now, and that you said there would be 32,000 -- I think it is -- projected, but he said you didn't say over what time period.

Mr. PARKER: The projections we ran go through the year 2002, about 20 years from now. And our projections are on the low side. We simply were not able to find any other route to handle this problem on an equitable, even-handed basis, giving all of our creditors, including asbestos claimants -- present and future -- a shot at our assets. If we had not filed Chapter 118 Jim, we would have been required to book up very large reserves -- $700 million, perhaps more -- immediately. That would have virtually wiped out our net worth.

LEHRER: What do you mean by book reserve?

Mr. PARKER: On the books of our company we would have had to reserve for the probable cost of this liability.

LEHRER: I see.

Mr. PARKER: That would have reduced our net worth almost to nothing. That would have made it almost impossible, if not totally impossible, for us to but raw materials and services on credit.We would have had to go on a cash-on-delivery basis. We would have had to collateralize our bank debt and our public debt. And then, with that secured debt outstanding, the asbestos claimants, the injured people, would have ranked below the secured debt, and be in a much worse position had we been forced into Chapter 11 two years from now than they are now. So what we actually did was go to the court -- as Mr. Baron says, we placed ourselves in the hands of the court, and said, "Look, this problem is really too big for us to handle alone. Unless the federal government comes in and shoulders its share of the responsibility, unless our insurance companies begin to pay us on the policies that we bought from them over the years, we simply cannot go forward on this basis. You, Your Honor, tell us how to apportion our assets among all of our creditors on an equitable, even-handed basis."

LEHRER: So there are some germs of truth to what Mr. Baron says, though, in terms of what -- you do want Congress and the federal government to act, and you do in fact want the insurance companies to act?

Mr. PARKER: Absolutely. Without action by Congress, without action by the insurance companies, there's not a chance that these claimants will have any sort of equitable compensation. There simply is not enough assets in our company or the industry as a whole to provide for those.

LEHRER: Now, his third charge I am sure you will not agree with, that your motivation was to delay the receiving of compensation by these victims, and thus to pressure them into settling or taking less?

Mr. PARKER: Absolutely not. As you know, our litigation system is not the most speedy system in the world. It normally takes from three to five years for a case to go through a trial. And setting aside the expensive nature of litigation, the delay there is very long. We think that by bringing all of this litigation into one forum, we can have an equitable adjudication of all the claims quickly and even-handedly. There is no other system available.

LEHRER: One forum. What you mean is some kind of compensation board that would be overseen and partially financed by the federal government?

Mr. PARKER: That's one method that's been suggested, and Mrs. Fenwick has suggested other methods along those lines.

LEHRER: That's Congresswoman Millicent Fenwick. We're going to be hearing from her later tonight.

Mr. PARKER: Right. Now, as it is now, jury determines whether a man is disabled, and if so for what reasons. Juries are very fine institutions, but they can't make these sorts of medical judgments in any sort of coherent, rational way. It takes three weeks to present this case before a jury. A medical panel can assess the medical information, make a determination of disability and award a certificate to the individual, who would then take the certificate to some sort of trust fund or centrally administered fund, and collect his compensation.

LEHRER: Thank you. Charlayne?

HUNTER-GAULT: Mr. Baron, to the first point Mr. Parker just made, that the asbestos workers would have been a lot less worse off if they had waited a couple of years, and then been forced into bankruptcy, as they would have been.

Mr. BARON: The facts and figures don't substantiate that. Manville has been able to operate very well under the circumstances that now present. We believe that within two or three years they will have substantial insurance through their own litigation that will provide for these people adequately.

HUNTER-GAULT: Mr. Parker?

Mr. PARKER: Well, I'm afraid Mr. Baron doesn't have the figures that we've been working with, and he will have them very shortly, as well as a copy of the research report done by the Epidemiological Resources, Incorporated, of Boston, which projects the number of asbestos disease cases that will be expected between now and the year 2000, and relates that to the number of lawsuits and the cost of disposing of those lawsuits. As I said, we've looked at this very carefully, and simply found no other method that could be used to equitably apportion the assets among all of our creditors, including the asbestos claimants.

HUNTER-GAULT: Would you be satisfied to receive that report that documents what --

Mr. BARON: We certainly would like to take a look at it, but based on the information that we have now, and particularly the information that we have from Manville's own filing, the company is a very, very -- we're talking about a company with over a billion dollars' worth of assets free and clear. They certainly have the ability to go out and borrow on the open market if they don't have the cash.

HUNTER-GAULT: Would that have worked, Mr. Parker, for you?

Mr. PARKER: Well, our whole point is the assets are not free and clear. The assets are encumbered by a contingent liability of immense proportions, perhaps $2 billion, perhaps more. And that contingent liability, under the accounting rules, and under the law, and under the SEC requirements, would have had to be booked immediately, essentially wiping out our net worth, and leaving the asbestos claimants, I think, in a much worse position than they are in now.

HUNTER-GAULT: Mr. Baron, what about Mr. Parker's point, that the real beneficiaries of all of this are the lawyers -- that only 20 or 30 percent of the monies involved actually get to the families, and this just is not a sensible way to go about it?

Mr. BARON: Well, I'd certainly like to speak to that point, because Mr. Parker seems to make it over and over and over. As Mr. Parker knows, plaintiffs' lawyers represent plaintiffs -- injured claimants -- on what's known as a contingent fee system. Under that contingent fee system, the standard amount of money that the attorney receives from his client upon completion of the case is one-third of the amount that the client receives. In Miss Fenwick's state, New Jersey --

HUNTER-GAULT: We'll get to her eventually.

Mr. BARON: -- the law says that it's only 25%. So how Mr. Parker comes up with these figures, I have no idea, because we would all be disbarred if that was the case.

HUNTER-GAULT: Mr. Parker?

Mr. PARKER: Well, Mr. Baron knows that in addition to his contingent fees, out of the plaintiff's portion of the settlement comes a litigation cost, including witness fees, court costs, and often a set-off for any workers compensation that the plaintiff has received prior to litigation. In addition to that, there are immense defense costs at least equal to the plaintiff's cost. And these costs, all rolled in together, wind up with the plaintiff -- the injured party -- receiving 20 to 30 percent of the total cost of this litigation, and those figures are compiled and published by the U.S. Department of Commerce. So I think that Mr. Baron's assessment is simply not correct, and I have seen -- I have seen checks going to plaintiffs' lawyers representing far in excess of the 30% figure Mr. Baron uses.

Mr. BARON: Well, in my opinion, Mr. Parker, based on your own statistics, it is costing you more -- Manville Corporation -- in defending these cases than it is in actually paying the claims.In other words, the attorneys' fees that are being paid in this litigation are being paid in great part on behalf of Manville's own attorneys. You're spending more money on your lawyers than you are on the claimants.

Mr. PARKER: That's not true, Mr. Baron.

Mr. BARON: In your own filing in California on Friday you indicated that $24 million had been paid as defense costs in these cases, and a little bit less than that in actual payments to benefits.

Mr. PARKER: Our average cost for the 3,500 cases that we have disposed of, in legal fees, is $7,500 per case. The average going to the plaintiff is about $17,000 per case. And we are only one of about 10 defendants normally caught up in this litigation.

HUNTER-GAULT: All right, we have to move on. Jim?

LEHRER: Manville and others, as we have heard, claim this situation would never have mushroomed into the problem it's now become if the federal government had assumed its responsibilities, financially and otherwise. The government's view of that now from Peter Nowinski of the civil division of the Justice Department, and the government's lead counsel on asbestos litigation. Do you buy the Manville argument that the government should share part of the burden in this?

PETER NOWINSKI: No, I don't, Jim. And of course the question assumes that the government is not sharing in any way in the burden. To the extent that injuries occurred at naval shipyards by civilian employees of the government, those victims are covered by the provisions of the Federal Employees' Compensation Act, which is rather generous in terms of other compensation schemes.

LEHRER: But that's civilian employees of the government, not civilian employees, say, of contractors who were in fact building ships for the government, right?

Mr. NOWINSKI: Well, in the case of private shipyards and situations where the claimant is an employee of a defense contractor of the Navy, for instance, the Nevy's contracts have -- at least to the extent I've reviewed them -- always required that its contractors procure and maintain workmen's compensation coverage for those people under applicable state laws or federal laws. And in other provisions of the contract, they make the cost of doing that recoverable from the Navy. So in that situation as well, the government is, in effect, underwriting workmen's compensation coverage for those people.

LEHRER: In other words, you just don't buy the argument -- in other words, you believe the responsibility for compensating these asbestos victims lies with Manville and these other companies, correct?

Mr. NOWINSKI: To the extent additional compensation is claimed or due or the injuries arose in other sites where the government is not contributing to the problem as I've described its contribution, yes. The problem lies with the manufacturer and seller of the product.

LEHRER: Now, you have been involved in a lot of this litigation that involves the government, at least. Do you agree with what the Washington Post said that this whole saga is a sad commentary on the effectiveness of our justice system?

Mr. NOWINSKI: No, I don't believe it's a sad commentary or that it shows the court at its most deplorable condition, which is what I think the editorial said. I think the litigation has certainly been a unique burden on the court system, and from time to time has shown some of the frailties of that system. But I believe the remark in the Post was tied with the allegation of Manville Corporation that all but one-fifth of the money spent on the litigation was going to somewhere besides the claimant. Mr. Baron commented, as did Mr. Parker, on the attorney fees. Mr. Baron didn't suggest -- and I was surprised he didn't -- that a great percentage of those fees are incurred by Manville in resisting the claims and making it all that more difficult for the injured worker to pursue his claim in the tort system, and I find it almost disingenuous that Manville would suggest that the expense of operating in the tort system -- which it has created by the resistance it's offered -- is some reason why it's entitled to relief. And I'd like to make one other point. The attorneys representing the claimants have worked for a long time, and I think they've produced a result that no other system could have achieved. It was the attorneys working for the plaintiffs, for instance, who found and exposed the so-called Sumner Simpson documents -- the exchange of correspondence in 1935 between Manville and Raybestos-Manhattan, one of the other leading members of the industry -- exhibiting a conscious decision to sit on this information and keep it from the public. And I, frankly, don't know of any other system that could have exposed that guilt.

LEHRER: No compensation board would have done that, in other words?

Mr. NOWINSKI: I doubt it very much.

LEHRER: Thank you. Charlayne?

HUNTER-GAULT: If the federal government does ultimately get involved financially, it will be the responsibility of the Congress to fashion the legislation. One member of Congress who has been working in this area is Millicent Fenwick, Republican of New Jersey. Congresswoman Fenwick, what exactly will your proposal do?

Rep. MILLICENT FENWICK: Well, it depends which proposal you're talking about. If it's my proposal of 1977, when I first introduced legislation, or my proposal of December, 1981, when I put in my last bill, that would operate on the workmen's compensation principle, and it would be funded by contributions from the producer -- the manufacturer. That would be 2% of the net sales 15years ago, in order to allow for the latency, and 1% from the user -- you know, if they're putting up asbestos-related material; and then three-tenths of 1% from the tobacco industry. Because it's been shown very clearly by Dr. Irving Selikoff of Mount Sinai, who is a great expert in the field -- he lectures all over: Canada, Australia, Great Britain -- and he says that you're 92 times more likely to get -- to suffer from asbestosis, from any of the asbestos-related diseases -- there's misophelioma; there's lung cancer; different forms --

HUNTER-GAULT: If you're a smoker --

Rep. FENWICK: If you smoke. And so, therefore, it seemed appropriate -- now, the new bill, of which I am also a co-sponsor -- I'm really desperate in this field, if you want to know the truth. To have people suffer like this, for me to receive letters, as I have, from all over this country -- sometimes from the men who are ill, and hoping that something can be done for their wife and children --

HUNTER-GAULT: So, basically, and thrust of your bill would be to create a fund that would compensate these victims?

Rep. FENWICK: Both bills. Both bills.

HUNTER-GAULT: That would compensate the victims?

Rep. FENWICK: The new bill, which has now been introduced by the chairman of the subcommittee, George Miller, of which I'm a co-sponsor, and we managed to get quite a number of fellow co-sponsors, we sent around a letter -- Perkins, who is chairman, and Miller and me. That will fund it, direct compensation by the latest employer, who will be required under the usual system to get insurance to cover his compensation plans, or to set up a fund of his own. Then, if that is inadequate or if the last employer is not the responsible one, then it would be a fund into which these companies who produce and use the material would have to pay.

HUNTER-GAULT: So you've excluded the federal government. You don't believe, then, in the fair-share theory that the federal govermment should also pay?

Rep. FENWICK: Well, my first bill did require the federal government to par, but my second bill, my third bill and this new bill do not because it seems to me that the federal govermment is paying, as the gentleman from the Justice Department has said, and I think some $7 million they've been paying out under this compensation act -- Federal Employees Compensation Act -- of direct employees. And so the latest -- my latest bills do not include any government participation.

HUNTER-GAULT: All right, very briefly, because we move on, you heard what Mr. Parker said, why Manville did this. Do you think that this is going to force congressional action, as they seem to hope?

Rep. FENWICK: Miss Hunter, I want to tell you something. I am so desperate for action in this field, I don't care brings the interest of the public to the concern of these people.

HUNTER-GAULT: Do you think this will?

Rep. FENWICK: I think this will, and to that extent, it may seem an odd way, and I'm not a lawyer, and maybe this isn't appropriate, but I tell you, whatever brings this to the attention of the public so that something concrete will be done. I have a letter here -- this woman here. "I received a notice from the compensation board my case was dropped," Thank heaven, she says, she has a wonderful attorney, Mr. Peterson, and -- but, three, four years -- four years she's been waiting. She said, "What do they want us to do? Die?"

HUNTER-GAULT: All right, I take your point. Jim?

LEHRER: Mr. Parker, nobody seems to be in favor of the federal government picking up any of the tab. Whatis your argument as to why they -- you've heard what everyone else has said about this, particularly Mr. Nowinski --

Mr. PARKER: You know, Jim, everybody says that the federal government only had a small portion of the responsibility here because they only had a few shipyards. Well, the federal government in the Second World War was responsible for the entire shipbuilding program, a program that built 6,500 vessels and refitted 60,000 vessels of our own and of our allies. The federal government controlled those shipyards; they specified the product; they designed the workplace, and they set standards for exposure to asbestos. Those standards were later proven woefully inadequate. And now the federal government steps back and says, "Uh-uh, private industry, this is your baby." Well, there's an old adage of common law that came to us from England that says the king can do no wrong. Well, there's a second part of that adage that says the king can do no wrong because the king sees that all wrongs are made right.Well, our government has conveniently cut off the second part of that, and has stepped away and turned its back to these people who were injured in wartime service, doing a patriotic duty to the country; and, Mr. Nowinski, we simply cannot handle the entire burden ourself. This is no dirrerent from the other programs that the federal government has put in place to take care of disabled people who cannot care for themselves, and there is no other alternative to them. So it's time for the federal government to come up to its share of the responsibility, and take on part of this load that is their just burden.

LEHRER: You just don't agree with that, Mr. Nowinski, right?

Mr. NOWINSKI: Well, I don't, and Mr. Parker has made a lot of unsupportable accusations, but one I find particularly curious, which is the accusation that the government had set standards in the shipyards. Interestingly, when the Occupational Safety and Health Administration was formed, effective in 1971, and undertook efforts to limit exposure to asbestos fibers in the workplace, it was Johns-Manville and its other members of the industry which opposed those efforts every step of the way, and they continue to oppose efforts by the government to impose more stringent requirements in the workplace.

LEHRER: Let me go back quickly to Congresswoman Fenwick. What do you think of Mr. Parker's argument as to why the federal government should put up some money on this? Congresswoman?

HUNTER-GAULT: What do you think of Mr. Parker's argument that the federal government should put up money for this?

Rep. FENWICK: I don't care who puts up what, to tell you the honest truth. I think that it is perfectly true, and Dr. Selikoff will tell you, the single biggest group of people over -- nearly five million were -- who are apt to be or are suffering from asbestos-related diseases are the shipyard workers; there is no doubt about it.Now, I don't know what the federal government did or did not do in the way of ordering standards. And, certainly, if they failed to order standards, if they did order standards, they have some share of responsibility. I don't care. That's for the lawyers to decide and the courts and the judges, but I want payment for the workers.

LEHRER: All right, we have to leave it there. I'm very sorry. Congresswoman, thank you; Mr. Baron, in New York, thank you; gentlemen here in Washington, thanks to you, and good night, Charlayne.

HUNTER-GAULT: Good night, Jim.

LEHRER: And we'll see you tomorrow night. I'm Jim Lehrer. Thank you and good night.