Another Mass Tort Bankruptcy, Sort of - Chinese Drywall and the Chapter 11 filed by Builder WCI

Chinese drywall claims are emerging as a would-be class action issues in the WCI Communities chapter 11 case pending in Delaware. Would be class representatives filed papers seeking permission to present a class proof of claim. WCI has now responded with a brief opposing the class. The opposition is routine in the sense that it follows all the now-standard tactics for seeking to block a class action regarding conditions in buildings. More interesting is the way this debtor wants to treat tort claims individually, in contrast to other "mass tort" cases in bankruptcy in which aggregation is said to be the answer. WCI's opposition brief is here.

WCI explains the issue as follows:


"By her Motions, Goldstein seeks permission to file a claim on behalf of a group of
individuals who have allegedly suffered damages from defective drywall originating from China (“Chinese Drywall”) installed in homes by WCI built in Florida. In order to file a class proof of claim, Goldstein also requests that this Court certify a class for purposes of pursuing claims on theories of negligence, strict liability, breach of warranty, and negligent misrepresentation."

Unlike debtors in some other mass tort cases, the debtors here provided individual mailed notice on a broad scope to potential tort claimants. Specifically, the brief says that notice was sent to all who purchased WCI Homes in the last 10 years:

"6. All individuals or entities that purchased a home built by the Debtors in
the last ten years (the “Home Purchasers”) received notice of the commencement of the Chapter 11 Cases and separate actual and constructive notice that February 2, 2009 at 4:00 p.m."

According to the brief, the number of claims filed is small ("over 70"), and so one one sees why the debtor opposes a class action that would increase claims. Also interesting is the Debtor's argument that bankruptcy court can and should individually resolve thousands of tort claims, an argument not heard when debtors and other plan proponents seek to "estimate" claim values.

" 22. Here, just as in Grace and Daigle, joinder is practicable. Despite Goldstein’s assumptions, the number of homeowners potentially affected by the Chinese Drywall attributable to WCI is more likely to number in the hundreds, rather than the thousands. To date, over 70 homeowners have filed proofs of claim related to the use of Chinese Drywall in their homes. The media coverage devoted to problems with Chinese Drywall has been extensive. Request for Judicial Notice in Support of the Debtors’ Objection to Motion of the Sound at Waterlefe, a Condominium, for Entry of an Order Requiring Debtors to Identify and Notify all Potential Defective Chinese Drywall Claimants of a Potential Defective Chinese Drywall Claim and to Enlarge Time to File Claims Arising from Defective Chinese Drywall (“Request for Judicial Notice”) [Docket No. 1786].

As shown from the claims relating to Chinese Drywall filed pre-petition, the amounts sought by claimants are significant, ranging from $50,000 to over $1,000,000. Thus, akin to Daigle, it is likely that interested persons have already filed individual proofs of claim. Further, as shown in Grace, even if thousands of claims are filed, the bankruptcy court is capable of resolving each individual claim. (emphasis added).

23. Goldstein ignores the realities of bankruptcy court. Virtually every large Chapter 11 case involves thousands of claims. Many will have tens of thousands. Bankruptcy courts are uniquely qualified to handle such claims and requiring each putative class member to file a claim is not unduly burdensome for the claimant or the Court. In this case, the Debtors already have approximately 4,000 claims filed against them and have developed specialized procedures to efficiently deal with them, including through the ADR Procedure. Therefore, a class proof of claim is not warranted."

WCI's brief shows the issue as scheduled for hearing on July 1.

Travelers/Manville Asbestos Bankruptcy Opinion - Reaction

I've been through the opinion and dissent (here) a couple of times. Travelers won, sort of, and the Second Circuit was reversed, sort of. While reading, I wondered how much the opinion was or was not shaped by the efforts to stay the order on the asset sale in Chrysler, and the now pending efforts to obtain certiorari. We may know that answer some day, but who knows.

Further reading and reflection is in order, but some immediate reactions are as follows, bearing in mind that my reaction is influenced by recency. Specifically, this past Monday, I listened to a talk by Professor Jeffrey Rosen to the Chicago Lawyers Club regarding the Supreme Court. He spent some time focusing on his interview of Chief Justice Roberts and the Chief Justice's hope to use "business cases" to produce unanimous narrow rulings to enhance the authority of the Court. (BTW, lots of people have lots of things to say about Professor Rosen and shifting views, e.g. here, so I am not holding him out as "the expert.") Today's Manville/Travelers ruling is not unanimous due to the two dissents but certainly does fit the "narrow" criteria.

For Chapter 11 cases that involve material amounts of product liability claims, including Chrysler, GM and "asbestos bankruptcies," the Manville/Travelers decision today is so narrow that all sides likely will claim to take some comfort from the ruling. Realistically, no one can claim to have won a clear victory through today's opinion, except that Travelers is happier today than it would have been if Justice Steven's dissent were the Court's ruling. In fact, today's ruling is so narrow that the case is sent back to the 2d Circuit for more proceedings as to which entities are or may be bound by the prior rulings. The opinion thus highlights the importance of the 2d Circuit's conclusions and reasoning in 1) the direct appeal in Chrysler and 2) its opinion on remand in this case.

The opinion can be read to suggest that it is safer to challenge bankruptcy court rulings on direct appeal instead of through rulings in other, later legal proceedings, such as future product liability cases against the debtor or an alleged or actual successor entity, such as New Chrysler. That message will not be lost on 1) debtors that sold mass produced products, 2) product liability claimants, and 3) all other parties to state court product liability cases that involve a product made or sold by a debtor, including component suppliers and other co-defendants in the state court tort suits. Insurers also no doubt will take note too. Certainly today's ruling puts more focus on the presently pending direct appeal papers now in front of the Supreme Court in the Chrysler case.

No doubt others will have comments over the next few days; I will try to collect comments into one post.

Travelers/Manville Opinion is Out

and available here, but I've not yet read the opinion.

"Libel Tourism" and England - Global Home for Libel Litigation ?

Who knew- apparently there is "libel tourism," a concept I learned about from reading Walter Olson at Pointof Law and then reading a recent Wall Street Journal article for which he provided the link. The article arises from a libel judgment entered against a science writer (Mr. Singh) who commands the respect of the WSJ. The article goes on to say that the burden of proof is essentially reversed in Britain, and that the burden is on the author to prove is on the author to prove that the article is "not libelous." This particular case apparently arose from the science writer taking issue with an article in which chiropractors asserted that they could cure are things such as colic, and the author called that claim "bogus." A 2006 article from Overlawyered indicates the House of Lords that year adopted a defense based on fair public comment. A group known as Sense About Science is complaining bitterly. Mr. Singh's credential s appear quite good; an account of his situation and appeal is posted here, and describes him as follows:

"Simon Singh completed a BSc in physics and a PhD in particle physics at Cambridge University before becoming a director and producer in the BBC science department. He worked on Tomorrow's World and Horizon and won a BAFTA for directing a documentary on the subject of Fermat's Last Theorem. After leaving the BBC, he wrote a series of bestselling popular science books, such as "Fermat's Last Theorem", "The Code Book" and "Big Bang". He has also presented several radio and TV programmes, and his educational initiatives include the Enigma Project and the Undergraduate Ambassadors Scheme. In 2003 he received an MBE for services to science education and communication."

Bankruptcy Court Releases of Tort Claims Against Non-debtors - Where and When Are Releases Proper ?

In Chrysler, the Official Committee Of Unsecured Creditors has filed a "limited objection to the efforts of the debtors to obtain their release of all potential tort and other claims against managers and others related to old Chrysler. The objection is Docket number 3991 on the Chrysler bankruptcy website and also is available here. The gist of the objection is that it is premature to release such claims until at least a hurried investigation has been conducted. The hearing on this issue apparently will occur tomorrow, June 18.

In other chapter 11 cases, the US Trustee's office in NY has recently objected to releasing non debtor parties when they have not made an extraordinary contribution to the bankruptcy estate, as I learned yesterday from reading LAW360 on bankruptcy. The objection was asserted in the Charter One bankruptcy, and is available here.

NonMalignant Claims Going Back Up If You Judge by the Manville Asbestos Trust Report for Q 1 2009

Walter Olson 's PointofLaw has a June 12 post about Judge Weinstein writing a pessimistic paper about the way courts handle mass tort claims. Judge Weinstein may feel the need to write again after considering the Manville Trust's quarterly report for the 1st quarter of 2009. The report is available here, and is depressing both for what it shows and what it does not show.


The visible and depressing part of the report involves nonmalignant claims - the ones that seemingly have been fading away. But, that's not true for Manville during the first quarter of 2009. Instead, nonmalignant claims went back up - significantly - contrary to prior trends. They are said to be category 2 nonmalignancies, which means "asbestosis/pleural plaques" with a scheduled payment of $12, 000 (subject to prorated payment ) under the terms of the 2002 Manville TDP procedures available here - see page 7.

Specifics? Doing a little math from figures shown in the report's cover letter to Judges Lifland and Weinstein, it looks like there were about 2,900 nonmalignant claims, which is far more claims than ALL the Manville claims filed in 1Q 2008. According to the report's cover letter:

"During the first quarter of 2009, the Trust received 4,853 new claim filings compared to 1,776 for the same period of 2008. The malignant filing population has accounted for approximately 40% of the total for the first quarter of 2009 claim filings compared to 68% for the first quarter of 2008. The percentage decrease in malignancies is attributed to the sharp increase in the filing of unimpaired non-malignant Level 2 claims." (emphasis added)

"The Trust settled 3,749 claims for $30.4 million during the first quarter 2009 compared to 1,582 claim settlements for $14.8 million during the same period of 2008. The average settlement amount for the first quarter of 2009 and 2008 was approximately $8,100 and $9,300, respectively. Once again, the decrease in the average settlement amount is due principally to the higher percentage of non-malignancy claims settled during the first quarter 2009."


Also depressing is the lack of data in the report to tell readers where these nonmalignant claims are coming from and the nature of the supporting proofs. Are these claims from persons resident in the US or persons who live overseas? Are some of these claims from older claimants who perhaps really did inhale large amounts of Manville fibers, or are some these claims from younger claimants with x-rays read by physicians of dubious repute who have not yet been banned from submitting the reports ? Or, are these all valid claims supported by sound medicine and science ? The report does not shed light on the answers to the questions. Once again, bankruptcy- related proceedings prove themselves to be the antithesis of transparency, and the Manville Data apparently remains unavailable, thus making it harder for anyone to figure out the real facts about tens of millions of dollars that perhaps should instead be available to be paid to mesothelioma claimants.

In GM, Asbestos Claimants Request Appointment of a Futures Representative est Request for

The Ad Hoc Committee seeking to represent the interests of asbestos claimants in GM filed a motion [Docket 478] requesting appointment of a futures representative to represent future asbestos claimants.

The Ad Hoc Committee has now expanded; footnote 1 of the motion identifies the committee members as consisting of asbestos claimants with lawyers described as follows:

"The Ad Hoc Committee of Asbestos Personal Injury Claimants is comprised of William J.

Lewis, a mesothelioma claimant with a settled but unpaid claim, represented by

SimmonsCooper LLC; Maureen Tavaglione, Personal Representative of the Estate of Robert

J. Tavaglione, represented by Waters & Kraus; Terry Roth, a lung cancer claimant,

represented by Brayton Purcell LLP; Jene Moore, Sr., a mesothelioma claimant represented

by Early Ludwick & Sweeney L.L.C.; Edward Levitch, a mesothelioma claimant represented

by Paul & Hanley LLP; and asbestos personal injury claimants represented by Cooney and

Conway; The Lanier Law Firm PLLC and Weitz & Luxemberg, P.C. Steven KazMcClain, Lyons, Greenwood & Harley, PLC, serves as an ex oficio member."

In support of their motion, the claimants cite GM's SEC filings that state a reserve of $ 627 million for the next 10 years of asbestos claims:

General Motors’ most recent Quarterly Report (Form 10-Q) filed with the

Securities and Exchange Commission admits that it has hired the firm of

“Hamilton Rabinovitz & Associates, Inc., a firm specializing in estimating

asbestos claims, to assist us in determining our potential liability for pending

and unasserted future asbestos personal injury claims.” After noting that

their estimates are “inherently subject to certain uncertainties” and that

their data sources and assumptions “may not prove to be reliable predictors

with respect to claims asserted against us,” General Motors states that its

“liability recorded for asbestos-related matters was $627 million, $648 million

and $628 million at March 31, 2009, December 31, 2008 and March 31, 2008

respectively.”

The Claimants argue the estimate is too low and fault the Auto Task Force:

Experience suggests that these figures fall on the extreme low side of likely future asbestos liability.

Thus the magnitude of General Motors’ projected ongoing asbestos liability

has been a matter of public knowledge and should have been addressed by

both General Motors and the Auto Task Force in their restructuring

activities.

The claimants filed motions [Docket 479][Docket 506] seeking an expedited June 18 hearing on the motion, arguing:

9. As stated in the Motion, to ensure that General Motors’

acknowledged future asbestos claimants are vigorously and faithfully

represented, a legal representative for future asbestos personal injury

claimants (a “Future Claimants’ Representative”) should be appointed at the

earliest possible date in order to take an “active and aggressive role” in

protecting their interests “at every step [of the] litigation.” Findley v. Falise

(In re Johns-Manville Corp.), 898 F.Supp. 473, 565 (S.D.N.Y. 1995).

Similarly, because the Sale Motion now before this Court seeks to affect the

rights of current asbestos claimants as well as future asbestos demand

holders, an Official Committee of Asbestos Personal Injury Claimants (an

“Asbestos Committee”) should be appointed as early in this bankruptcy case

as is practicable.

11. With the fast track schedule to which the Debtors are

committed, delaying appointment of a Future Claims’ Representative and an

Asbestos Committee would, in effect, deny unknown future asbestos

claimants the protections to which they are entitled and deny current

asbestos claimants any meaningful participation in these cases.

Judge Gerber denied the motion in an order [Docket 507] that consists of a sentence written on the face of the motion, saying that adequate cause had not been shown. Therefore, the hearing is now set by notice [Docket 637] for June 25 at the 9:45 am hearing, which is 5 days before the June 30 sale hearing is scheduled to occur.

Preliminary Report In UK on Possible Changes to Assessment of Costs

The UK is famous for assessing costs if a case actually goes to judgment. A new look at that topic is underway and is slated to produce a final report by year end 2009. A preliminary draft report has been issued and will be the subject of meetings and comments over the summer. More specifically, a press release from the British Judiciary explains that " Lord Justice Jackson has published the preliminary report in his Review of Civil Litigation Costs.The report is a major piece of work, deriving from four months of fact-finding, research and receiving submissions, and it extends to over 650 pages with three annexes and 30 appendices. It is available" online here.


A June 1, 2009 article in Business Insurance by Sarah Vesey provides a terse summary of the report. She comments:

"In the report, Justice Jackson said several potential changes to the existing cost regime for group actions "merit consideration."

Among them are instituting a no-cost-shifting rule; allowing cost-shifting for only part of the proceedings, for example only after the stage where a class wins certification; implementing a common funds doctrine, such as that used in the United States in which successful lawyers are entitled to have their fees reimbursed from the fund awarded to the class; public interest litigation, whereby the court has power to order that no cost-shifting occur when a group representative brings an action on an issue of public interest; and using a lower-cost scale for collective actions.

Justice Jackson said his "tentative view" to do away with cost-shifting for collective actions merits serious consideration in the second phase of his review and would, among other things, promote access to justice and be fairer for defendants."

Global Litigation Trends Article - Aggregate Litigation, Contingent Fees, Litigation Funding, and Punitive Damages

Looking for a tight but informative summary of changes around the globe with respect to (1) aggregate or class action litigation, (2) contingent fees and litigation funding, and (3) exemplary or punitive damages? If so, you should read a new article, "Global Litigation Trends." The authors are Mark Behrens, Gregory Fowler and Silvia Kim, who are all Shook Hardy lawyers. The article was published at 17 Michigan State Journal of International Law 166 (2008-09). You can download it here from the TortsProf blog.


I particularly liked the article because it packs a material amount of information into 30 pages. The first two sections provide an overview of particular developments in aggregate litigation/class actions and some nation by nation citations to articles on aggregate litigation. Those highlights are followed in section III by an incredibly handy reference tool that provides a country by country synopsis of the aggregate litigation procedures increasingly available in countries ranging from Argentina to Taiwan, followed by a brief section IV addressing EU law aggregate litigation developments. Section V addresses developments in paying for litigation. First covered are changes around the world with respect to contingency fees (they are permitted more places than you might think - for example, Italy recently passed legislation to permit contingent fees), as well as uplift fees, success fees and multipliers. The section also touches briefly on the rise of litigation funding outside the US. Global developments in punitive damages are covered in section VI. The article provides cogent cites to demonstrate that new attitudes are developing outside the US with respect to non compensatory damages.


As the name of this blog reflects, it seems plain enough to me that tort litigation is indeed going global, albeit with regional and national twists, not to to mention the intricacies of comparing civil law countries to common law countries, as well as developments in Asia where some countries have this century essentially embarked anew in their approach to courts and law because past law was feudal or otherwise outmoded. I was curious though to read the the concluding remarks of Mark and his colleagues since they (like me) are not academics and represent the defense side in most cases. Here's what they had to say:



"A growing list of countries outside the United States, including Canada, Australia, most European, and several South American countries, now recognize some form of multiclaimant litigation— whether class actions, groups actions, or representative actions by consumer or public organizations. The trend, however, has been to reject wholesale adoption of U.S.-style class actions. What has emerged instead is a distinctly “un-American” approach that generally disfavors opt-out procedures and often allows public bodies and private consumer organizations to bring collective actions in addition to (and sometimes in place of) individuals. Foreign countries also have “not so far been inclined to change other rules that have helped make class action lawsuits practical in the United States.” In particular, there have not been widespread calls to do away with the loser-pays rule. Contingent fees and punitive damages remain generally prohibited, but changes are occurring in this area and past prohibitions are softening. The stepstaken so far in these two areas, in particular, have been incremental and modest—but a wall is built one brick at a time. If collective actions become more prevalent, and the foreign plaintiffs’ bar better funded and coordinated as a result, it would not be surprising to hear calls for broader and speedier reform."