EXHIBIT 99.2
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
IN RE: : CHAPTER 11
:
USG CORPORATION, : JOINTLY ADMINISTERED
A DELAWARE CORPORATION, : CASE NO. 01-2094 (RJN)
ET AL.(1) :
:
DEBTORS. :
: MEMORANDUM OPINION
: AND ORDER
:
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This document constitutes the Memorandum Opinion and Order of the
Court. On November 27, 2001, pursuant to the provisions of 28 U.S.C. ss.292(b),
the Honorable Alfred M. Wolin was designated and assigned to hold court in the
District of Delaware to complete unfinished business in a number of bankruptcy
cases. These cases carry with them an enormous volume of known and unknown
asbestos claims. In one of these cases, the above-captioned In re USG Corp.,
Case No. 01-2094, the debtor (hereinafter "USG") has applied for certain case
management initiatives in the form of a case management order directed towards
estimation hearings of the approximately 190,000 asbestos personal injury claims
pending against it pursuant to 11 U.S.C. ss.502(c).
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(1) The Debtors are the following 11 entities: USG Corporation, United
States Gypsum Company, USG Interiors Inc., USG Interiors International, Inc.,
L&W Supply Corporation, Beadex Manufacturing, LLC, B-R Pipeline Company, La
Mirada Products Co., Inc., USG Industries, Inc., USG Pipeline Company and
Stocking Specialists, Inc.
The salient point of the debtors' proposal is that they would be
permitted to challenge the validity of the claims against them in the context
of the estimation hearing.
USG contends that it possesses substantive defenses to many of the
asbestos claims against it and to many of the asbestos claims anticipated to
be made in the future. The Court is sensitive to the concerns behind the
debtors' position. Much has been written about the so-called "unimpaired"
claimants, those who have been exposed to asbestos and may bear clinically
verifiable signs of that exposure, but who currently exhibit no outward
symptoms interfering with the quality of their lives. With a finite amount
of money available to pay claims, competition for payment is more than an
academic question. That shareholders' equity may be extinguished to compensate
those whom they believe suffered no tangible harm is a bitter corporate pill
to swallow.
The Asbestos Claimants' Committee ("ACC"), and the Future Claimants'
Representative ("FCR") view this type of merits-based estimation hearing as
unnecessary and unduly burdensome. They proffer that an estimation of USG's
present and future asbestos liability can be made on the basis of USG's
pre-petition settlements and litigation history of asbestos-related personal
injury claims and lawsuits. It is similarly distasteful medicine to tort
claimants to hear that claims identical to those which
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were either litigated to judgment or settled in the state tort system over the
course of many years could be eliminated by an imaginative application of
federal procedural rules.
A third fact looms over this controversy, however. It has been
represented to the Court, and financial analyses dehors the record make it
appear at least plausible, that USG is insolvent even if one only counts the
claims of the very sick or deceased victims of asbestos exposure. As to these
claimants, still according to the ACC and FCR, the debtors have no legitimate
defense. Debtors, of course, insist that even these claimants should not
recover. This much is clear, however -- if this subset of very sick or deceased
claimants represents valid claims in excess of the net worth of the debtor,
small benefit will be gained for immense cost of litigating the entire universe
of claims, including the so-called "unimpaireds."
The Court is aware that the tension between the positions articulated
by the parties concerning the proper mode of valuing the debtors' asbestos
liability reveals a fundamental, perhaps the fundamental divide between them.
Indeed, the issue may lie at the heart of all asbestos bankruptcies. It is
important, therefore, that all understand with perfect clarity the Court's role
in relation to this dispute.
The Court exists to assist the parties in resolving their differences.
It does so by providing a framework within which
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the parties can litigate those differences to a Court-imposed result or
compromise them based upon the parties' expectation of a predictable outcome. In
bankruptcy, where liabilities exceed the assets of the estate, the Court will
assist the parties in apportioning the remaining assets among the legitimate
claimants. But, if the debtor maintains that its creditors are not legitimate
and that, properly analyzed, claims against it do not exceed its assets, the
Court must assist as well.(2) The statements in counsels' briefs compel the
Court to state the obvious. In an asbestos bankruptcy, the Court will, within
the constraints of the law, reject unsubstantiated claims, bogus medical
evidence and fanciful theories of causation. The Court will protect those who
have been truly harmed.
As stated, this Court can do so only within the context of the law binding upon
it and upon the claims before it. It is basic that federal bankruptcy
jurisdiction does not oust state law governing claims on a debtor's estate.
Raleigh v. Illinois Dep't of Revenue, 530 U.S. 15, 20 (2000) ('basic federal
rule' in bankruptcy is that state law governs the substance of claims").
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(2) Thus the mode selected is ultimately determined by parties. For
example, the matter of In re Armstrong World Indus., also pending before this
Court, a consensual solution is already well-advanced. In that and other cases,
the value of asbestos liability is based upon the private parties' own
assessment of that liability, as adjusted by mutual, self-interested compromise.
The ultimate result is no less legitimate, however, than one imposed by the
Court.
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The Bankruptcy Code only creates a forum for dividing inadequate assets among
competing claims; it says nothing about the law under which those claims arise.
An unbroken line of authority holds that state law claims remain governed by
state law, even after the debtor invokes federal bankruptcy protection.
This principle defines the extent of the Court's discretion. Matters
concerning claims administration, including such issues as proof of claim forms
and claims bar dates are governed by the federal Bankruptcy Code and Rules. In
these areas the Court has some limited discretion. As to the application of
federal or state substantive law to the merits of the claims themselves, the
Court has no discretion. With these structural truths in hand, the Court now
turns to the application at bar.
In In re USG Corporation, one sees these general truths played out
in detail. The debtors argues that "[t]he vast majority of asbestos personal
injury suits filed today are meritless nonmalignant claims of minor pleural
plagues diagnosed by dubious methods." USG Brf. at 16. USG contends that its
due process rights require that the Court examine the merits of these claims.
The debtors contend that the so-called "unimpaired" claimants have no valid
claims, that claimants cannot identify an USG product to which they were
exposed, that lung cancer claimants have no diagnosis of asbestosis and thus
cannot prove that their cancer is caused by asbestos, and that mesothelioma
is
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not caused by chrysotile asbestos, the type of asbestos used in USG products.
The debtors believe that success on these defenses would eliminate sufficient
claims so that the remaining asbestos claimants could be paid in full, USG Brf.
at 36, and, presumably, leave value in the debtors' estates for existing equity
holders.
The ACC responds with weighty arguments. The debtors propose to
litigate their defenses in relation to a sample of one percent of claimants,
and extrapolate the results over the entire claimant pool to arrive at an
estimated total allowed claim. The ACC disputes that one percent of the claimant
pool would produce a statistically reliable base for extrapolation, and
contends that, in any event, this approach was expressly rejected by the Fifth
Circuit as an unconstitutional impairment of the right to a jury. Cimino v.
Ravmark Indus., Inc., 151 F.3d 297 (5th Cir. 1998). On the logistical front,
the ACC points out that one percent of the debtors' 190,000 claimants is still
an unmanageable 1,900 individual litigants, each of whom presumably would
insist on exercising the full panoply of discovery and trial rights.
The ACC maintains that the debtors' proposal to use Daubert hearings
and expert panels to attack the medical merits of the tort claims would pervert
these devices from their legitimate use. What the debtors are really attempting,
the ACC contends, is to re-litigate over a decade's worth of asbestos personal
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injury litigation in the state courts, litigation which USG consistently either
lost suffering heavy damage awards, or paid substantial sums to settle. The
ACC suggests that the fact that USG has been paying such large amounts over so a
long period of time to resolve its asbestos liability undermines its position
that the claims against it now are without merit. At a minimum, they contend,
this raises the possibility that, even if Daubert and expert panels properly
could be used as debtors suggest, the debtors would lose anyway.
It has been represented to the Court, however, that USG may well be
insolvent even if only those claimants with mesothelioma, lung cancer and other
cancers are counted. If this is true, the implications for this application are
grave. No one has denied that, were the Court to adopt the debtors' proposed
course of substantive estimation, the cost in time and money from the debtors'
estates would be substantial. The supermajority requirement of 11 U.S.C. ss.
524(g) grants the tort claimants undeniable power, power that would translate
into long, hard fought and expensive litigation over every step of the debtors'
plan were it to be put in place by the Court. The Court must be satisfied that
there is a real benefit to be gained before it embarks on this course.
Thus, even assuming the legal merits of the debtors' position, the
chance that the legitimate cancer claimants alone
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may represent a liability in excess of the debtors' assets means that any
benefit to be gained by adopting the debtors' case management proposal may be
illusory. If USG is made insolvent by the cancer claimants alone, existing
equity will get nothing under any plan of reorganization. The
debtors-in-possession will have no stake, and presumably no interest, in
pressing for the elimination of the majority of the claims they now argue are
invalid. Any continued objection to a plan of reorganization by them, existing
equity or even general unsecured creditors would be subject to cram down under
11 U.S.C. SS. 1129.
Moreover, it is far more practical to estimate the universe of cancer
claimants by themselves than to undergo a merit-based estimation of all of the
tort claimants. (3) Unlike for many of the so-called "unimpaireds," pathology
reports or autopsy reports will exist to substantiate the harm suffered by the
cancer claimants. Doctors' reports will usually be from treating physicians, not
from persons engaged in mass screenings, a practice found so objectionable by
the debtors. By focusing on those claimants who have indisputably been damaged,
the Court need not, at this juncture of the case, delve into the troubled
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(3) The practical benefits of dealing with the sickest claimants first
have been apparent to the courts for many years and have led to the adoption of
deferred claims registries in various jurisdictions. See Schuck, The Worst
Should Go First: Deferral Registries In Asbestos Litigation, 15 Harv. J.L. &
Pub. Pol. 541 (1992). Moreover, legislation has been proposed that embraces this
principle.
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and occasionally metaphysical controversy of the so-called "unimpaired" class of
claimants.
The burden on the claimants may be minimized as well. Claim forms
submitted pursuant to this Memorandum and Order may serve also as the claim
against the 524(g) trust most assume will be established upon confirmation of a
plan of reorganization. This will avoid onerous duplication of effort. Many
cancer claimants have already filed claim forms in other bankruptcy cases.
Potentially, these will serve as a ready source of information for the
preparation of claim forms for this case. Upon a finding by the Court that these
claims forms are adequate for its purposes, claim forms from other cases may be
directly submitted here in lieu of a new form.
Upon the passing of a cancer-only bar date and processing of the claims
submitted, the Court will hold an estimation hearing under 11 U.S.C. ss. 502(c).
At this time, debtors will be permitted to present their defenses. The Court
will not decide now the precise procedural device with which these defenses
will be brought before the Court. Debtors may wish to attack certain medical
evidence under Federal Rule of Evidence 702 and Daubert v. Merrell Dow
Pharmaceuticals, 509 U.S. 579 (1993). They may wish to move for summary judgment
on certain issues on a claims-wide consolidated basis pursuant to Federal Rule
of Civil Procedure 42. The parties may be assured that the Court will
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entertain such applications only to the extent they do not interfere with the
claimants' constitutional and legal rights as prescribed by law and as set forth
at length in their written and oral submissions to the Court.
To accomplish this end, the Court will make the following provisions.
The debtors will, within thirty days of the date of this Memorandum Opinion and
Order, submit to the Court a proposed Order creating a claims bar date for all
persons with a claim against USG and its affiliates for personal injury arising
out of asbestos exposure who can certify as follows:
A diagnosis of cancer, which is demonstrated by a medical
report of a board-certified internist, pulmonary specialist,
oncologist or pathologist showing the diagnosis as a primary
cancer, which states to a reasonable degree of medical
certainty that the cancer in question is caused by asbestos
exposure.
The proposed order shall provide that those claimants who can certify
that they possess a claim based upon the above-listed criteria shall be required
to submit a claim form containing the following information:
1. Identifying Information (Injured Party)
Name of injured party
Social Security Number (SSN)
Gender
Date of birth
Mortality status (living, deceased)
If deceased, Was death asbestos related
If deceased, date of death
If living, mailing address
If claimant has personal representative, state that person's
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- name
- social security number
- Mailing address
- Relation to injured party
2. Counsel Information (Lead counsel only)
Law firm name
Attorney name
Telephone number
Mailing address
3. Dependents and/or Beneficiaries Information
Dependent/Beneficiary name
Dependent/Beneficiary date of birth
Dependent/Beneficiary relationship to injured party
Whether dependent is financially dependent
4. Alleged Asbestos-Related Injuries & Date of Diagnosis
Mesothelioma
Lung Cancer
Other Cancer
Required Supporting Documentation
Death Certificate (if deceased) with cause of death
5. Required Supporting Documentation
Certificate of Official Capacity (if claimant has personal
representative)
Medical Record Supporting the Alleged Diagnosis including:
physical exam results,
pathology reports
diagnostic reports
Statement of diagnosing physician regarding whether
whether he/she conducted a physical examination.
whether he/she treated the claimant
what factors the diagnosing physician relied upon in
the diagnosis.
6. Smoking History
has the claimant ever smoked cigarettes, cigars, or pipes
has claimant ever used chewing tobacco or snuff
What was the frequency and duration of use
7. Occupational Exposure to USG Products
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Date exposure began
Date exposure ended
Occupation during exposure
Description of job duties
Industry in which exposure occurred
Description of how USG product was used at the site
Employer or site owner
Site of exposure
Nature of exposure
USG product exposed to
8. Exposure to another person who was occupationally exposed
Date exposure began
Date exposure ended
Relationship to source individual
Nature of exposure
USG product exposed to
9. Asbestos Litigation
Has a lawsuit been filed on behalf of the claimant
Court where suit originally filed
Date originally filed
Verdicts against USG or any co-defendant
Has the claimant received settlement money from USG; if so, in what amounts
Has injured party received settlement money or verdict payments from other
defendants (and amounts)
10. Employment Information
Current employment status
Amount of last annual wage
Date of last annual wage
Upon the bar date, the forms contemplated by this Order shall be submitted
to a claims analysis and administration facility. The facility shall be selected
by the Court following input from the parties. The facility shall process and
analyze the claims to produce workable information to the parties that cannot be
impeached for bias and will be in aid of further case
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management initiatives.
Upon receipt of the debtors' proposed Order, the Court will afford all
parties the opportunity to comment upon it. All discovery is stayed until
further order of the court.
IT IS so Ordered this 19th day of February 2003.
/s/ Alfred M. Wolin
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ALFRED M. WOLIN, U.S.D.J.
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