New Science - Observable Brain Changes in Rats Subjected to Stress

More on brain rewiring and damages potentially recoverable in current or future tort litigation. This prior post provided some fact patterns and legal issues on future damages issues as drawn from research breakthroughs described in a wonderful book on brain plasticity - The Brain That Changes Itself -- Stories of Personal Triumph from the Frontiers of Brain Science, by Dr. Norman Doidge.

Now, here's more to think about as both individuals and as tort lawyers who end up in arguments about what is "harm," how it is proved and measured, and how it is compensated. Specifically, yet more news on brain rewiring is out and indicates that stress does produce physical changes in the brain, thus providing possible evidentiary support for claims that stress is indeed a physical injury.

This August 17, 2009 NYT article by Natalie Angier summarizes new research on brain plasticity as it relates to stress. The gist is that scientists in Portugual this summer published an article in a prestigious medical journal regarding their findings on brain changes when rats were subjected to stress. The not so good news is that stress does indeed destroy brain wiring. The better news is that the brain can rewire and return to "normal" when the stress is reduced back to normal levels. Here are key quotes:

"Reporting earlier this summer in the journal Science, Nuno Sousa of the Life and Health Sciences Research Institute at the University of Minho in Portugal and his colleagues described experiments in which chronically stressed rats lost their elastic rat cunning and instead fell back on familiar routines and rote responses, like compulsively pressing a bar for food pellets they had no intention of eating.

Moreover, the rats’ behavioral perturbations were reflected by a pair of complementary changes in their underlying neural circuitry. On the one hand, regions of the brain associated with executive decision-making and goal-directed behaviors had shriveled, while, conversely, brain sectors linked to habit formation had bloomed. (emphasis added).

****
But with only four weeks’ vacation in a supportive setting free of bullies and Tasers, the formerly stressed rats looked just like the controls, able to innovate, discriminate and lay off the bar. Atrophied synaptic connections in the decisive regions of the prefrontal cortex resprouted, while the overgrown dendritic vines of the habit-prone sensorimotor striatum retreated."


If I were a plaintiff's lawyer, the NYT and Science article would be dropped into my bag of citations and evidence to argue for a broader range of treatment after, for example, suffering a trauma from a one time physical event or after cancer has been countered via surgery, chemotherapy or other means. As a defense lawyer, I'm probably going to argue this is not (yet) accepted science and try to keep it out of evidence under the Daubert rules. But, one might also ask what makes sense for the long term - perhaps injured people should receive some paid for r & r to get them into good patterns and a better recovery that may save money in the long run. Then we lawyers can argue about who should pay for it - the health insurer, the Comphrehensive General Liability insurer, the tort defendant or some government agency.

Transparency - Another Effort to Force PACER to Become Free

This article from Wired, also pasted below, describes clever computer people devising a way to push harder towards forcing the federal courts to stop using court records in PACER to generate money, thereby limiting transparency. In essence, new software on Firefox tells you if a document you want already is in a free database, and also picks up copies of documents pulled out of PACER and adds them to the free database. Through this and other steps, perhaps some day even bankruptcy courts will be transparent.

Firefox Plug-In Frees Court Records, Threatens Judiciary Profits

By Ryan Singel
August 14, 2009
2:07 pm
Categories: The Courts

Access to the nation’s federal law proceedings just got a public interest hack, thanks to programmers from Princeton, Harvard and the Internet Archive, who released a Firefox plug-in designed to make millions of pages of legal documents free.
Free as in beer and free as in speech.
The Problem: Federal courts use an archaic, document-tracking system known as PACER as their official repository for complaints, court motions, case scheduling and decisions. The system design resembles a DMV computer system, circa 1988 — and lacks even the most basic functionality, such as notifications when a case gets a new filing. But what’s worse is that PACER charges 8 cents per page (capped at $2.40 per doc) and even charges for searches — an embarrassing limitation on public access to information, especially when the documents are copyright-free.
The Solution: RECAP, a Firefox-only plugin, that rides along as one usually uses PACER — but it automatically checks if the document you want is already in its own database. The plug-in’s tagline, ‘Turning PACER around,’ alludes to the fact that its name comes from spelling PACER backwards. RECAP’s database is being seeded with millions of bankruptcy and Federal District Court documents, which have been donated, bought or gotten for free by open-government advocate Carl Malamud and fellow travelers such as Justia.
And if the document you request isn’t already in the public archive, then RECAP adds the ones you purchase to the public repository.
The plug-in was released by Princeton’s Center for Information Technology Policy, coded by Harlan Yu and Tim Lee, under the direction of noted computer science professor Ed Felten.
That’s a pretty good hack, but it’s still just a stop-gap measure until the federal courts figure out that in the age of the internet, charging citizens to search and read public documents should be a federal crime.
Using it should not cause journalists, lawyers or law students (PACER’s main customers) any legal trouble. After all, court documents are never copyrightable.
But you never know how the justice system might react. Last fall, the federal court system shut down a pilot program that offered free PACER access at a few libraries around the country after it figured out that Malamud and hacker Aaron Swartz took them at their word and started downloading court decisions by the gigabyte.
That got Malamud 20 percent of the fed’s court filings and an interrogation by FBI agents earlier this year.
Hopefully RECAP will get a friendlier reception from the U.S. Federal Court System.

Differences In Legal Systems - Mexico and the US On Criminal Law

How different is the Mexican legal system from the US system? The article pasted below provides a glimpse in to the current signficant differences between the US crininal law system and the Mexican criminal law system. The article is from the August 14, 2009 issue of the Chicago Daily Law Bulletin.

School helps Mexico change trial process

By Jerry Crimmins Law Bulletin staff writer

Chicago-Kent College of Law is playing a role in the sweeping reform of the ancient criminal justice system of Mexico.
For hundreds of years criminal trials in Mexico — if you could call them that — have been hidden, according to David A. Erickson, associate director of Chicago-Kent's Trial Advocacy Program.
They were seen by neither the victims, the defendants, the witnesses nor the public.
"There was nothing to watch,'' he said. "There was no trial in our sense. The entire system for the last 500 years has been written….
"The prosecutor writes up all his evidence," Erickson said. "The defense attorney writes up all his evidence…. The lawyers stood in front of a judge and handed the stuff to his secretary, and that was it.
"A year or two later, the judge writes his decision,'' and sometimes the delay in the verdict is longer than that, Erickson continued. "They never put on a witness, and a defendant in this system never gets to see his judge.''
The Mexican criminal justice system is "inquisitorial,'' Erickson said, because the judge asks all of the questions.
But now, pushed by President Felipe Calderon, Mexico is moving toward nationwide adoption of an accusatorial, oral trial system like the one in the United States.
This eventually will mean public trials, public questioning of witnesses, defendants sitting at their own trial who get to see their accusers and the judge, and the presence of the public and news media, Erickson said.
"This is a total, 180-degree change for them. It takes a lot of courage for them to do this,'' he said.
The reforms are expected to take eight years. They are intended, according to Chicago-Kent, to fight corruption and instill public confidence in the judicial system.
Chicago-Kent's job, with a $1.2 million grant from the U.S. government, is to train judges, lawyers, law professors and students on how to conduct open trials.
"We've been down there twice, the first time for a planning session in January,'' Erickson said. "Our partner law school [Technologico de Monterrey in Mexico City] built a million-dollar courtroom in its law school for us to train.''
In June, Erickson, along with Chicago-Kent Professsor William Douglas Godfrey, Adjunct Professor Ljubica D. Popovic, and student Mariana Munoz, went to Mexico again to teach lawyers and judges how to try a case in the open.
Godfrey and Popovic are former prosecutors. Erickson has wide experience in criminal law. He started out as a prosecutor and became first assistant state's attorney of Cook County. He also has served as a Criminal Courts judge, a Juvenile Court judge and justice of the Illinois Appellate Court.
Munoz' father is from Mexico and her mother from the U.S., and she is fluent in Spanish.
"I had Mexican lawyers on their feet doing direct examinations, cross-examinations, opening arguments, closing statements,'' Erickson said. "They did it just like we did here in the United States.''
Until recently, he said, Mexicans' only knowledge of open trials came from movies and TV. "They think everything is like 'Law and Order.'
"First we taught their entire faculty of 26, all the professors,'' Erickson continued, "then about 20 lawyers. I lectured 16 judges."
Ten students from the law school also came and watched. Although they hadn't been invited. Erickson insisted that they be allowed to stay.
"The younger the lawyer, the more they're in favor of this,'' he said. "Judges are more reticent.''
Partly they are afraid that, if they are known, they may be killed due to the widespread violence perpetrated by drug gangs, he said.
Erickson said one judge told him, "I can go to a coffee shop now and nobody knows I'm a judge. In this new system everybody knows.''
Prosecutors and police are often opposed to open trials in Mexico, Erickson continued. "The current president ramrodded this through.''
As part of widespread reforms approved by the Mexican government a year ago, Mexico copied and adopted the Fourth, Fifth, and Sixth amendments to the U.S. Constitution.
In the U.S., the Fourth Amendment guards against unreasonable searches and seizures; the Fifth prohibits double jeopardy and forced self-incrimination, and provides for due process and property rights; the Sixth provides for speedy public trials, the right to confront accusers, the right to bring one's own witnesses and the right to a lawyer.
The Mexican criminal justice amendments are expanded, Erickson said. "They mandate in the constitution a federal defender program, and also a victims' bill of rights…. It allows the victim of a crime to retain a private attorney and to sit at the counsel table and participate in the trial.''
Mexico has started to use open trials in a few locations. The training program conducted by Chicago-Kent and Technologico de Monterrey will educate lawyers in Nuevo Leon, Baja California and Morelos. The program is also intended to train Mexican law professors who will then teach others.
A few Mexican lawyers, including two this coming school year, will attend Chicago-Kent to study international law, with an emphasis on criminal law, and earn LLM degrees.
The Mexican reforms do not include jury trials. Judges still will decide verdicts.
Erickson said Mexico also has hired Americans from New Mexico and Arizona to build crime labs for them.
"They realize they have no concept of forensic evidence the way we do,'' he said.
And although Mexico does have a criminal appellate court, "they are going to have to embrace the concept of precedent and stare decisis,'' Erickson said, although the reforms have not yet gone that far.
jcrimmins@lbpc.com

Asbestos Plaintiff's Lawyers Ask W.R. Grace Bankruptcy Court to Order that Its Findings - on Solvency - Do Not Matter In any Other Forum

The W. R. Grace chapter 11 case has produced a striking motion that highlights the too often bizarre and unconstitutional nature of much that happens in mass tort chapter 11 cases. In their motion, available here [Docket # 22543], the Asbestos Creditors Committee and the Futures Representative ask the bankruptcy court, Judge Judith Fitzgerald, to issue an order that any post-trial findings she makes on the solvency of Grace are to have no effect outside of her courtroom. The motion goes on to say that Grace does not object to the motion or proposed order.

As proof that I am not making up this motion "to pay no attention to the findings," set out below are key quotes from the motion and the proposed order. The full text quotes are followed by analysis of why the motion is rather absurd, why it was filed, and why it is unfair to co-defendants who remain stuck in asbestos cases in which Grace was, is or should be a co-defendant. The short answer, in my opinion, is that the motion to pay no attention to the findings is a transparent ploy to game the state courts by having them treat Grace as if it is insolvent even though it is in fact solvent. Why? Because Grace being viewed as insolvent by state court judges will in some cases block state court proceedings from properly allocating fault and/or monetary losses to Grace, thus defeating state laws on allocating fault and loss among multiple tort defendants.

1) Key Quotes from the Motion to Pay No Attention

The following are the key portions of the motion to "pay no attention to the findings:"

"In support [of this motion], the ACC and the FCR state as follows:

1. As the Court is aware, the Bank Lenders, various unsecured creditors, and the Official Committee of Unsecured Creditors (collectively, the “Unsecured Creditors”) object that the Debtors are solvent and, therefore, the Unsecured Creditors are entitled to receive post-petition interest. The Unsecured Creditors have indicated that they intend to litigate this issue at the upcoming confirmation hearing.


2. Whether the Unsecured Creditors are entitled to post-petition interest, and
if so, at what rate is, at bottom, a contractual dispute between the Debtors, on the one hand, and the Bank Lenders and other Unsecured Creditors, on the other hand. Neither the ACC nor the FCR are parties to the relevant contracts, and are not participants in that dispute. Accordingly, the ACC and the FCR are not required, and do not intend, to present evidence on these issues."

Here is the request for relief:

"WHEREFORE, the ACC and the FCR respectfully request entry of an order, in the form of the proposed order attached hereto, providing that any findings or conclusions by the Court with respect to solvency shall only be used for the purpose of determining whether the Unsecured Creditors are entitled to postpetition interest and shall not be used by any party for any other purpose, and granting such other and further relief as the Court may deem just."

Set out below is the key portion of the proposed order - note that it is NOT limited to the bankruptcy court case and instead refers to any proceedings anywhere, such as a state court asbestos law suit where Grace being solvent might make it possible for other defendants to allocate fault or liability to Grace:

IT IS HEREBY ORDERED that:

Any findings made or conclusions reached by the Court with respect to the Debtors’ solvency shall be used only for the purpose of assisting the Court to resolve the question of whether Unsecured Creditors, as defined in the Motion, are entitled to postpetition interest and shall not be used by any party in any proceeding for any other purpose. (emphasis added)

IT IS SO ORDERED.


2) Analysis of the Motion to Pay No Attention to the Findings


The ACC's motion is striking for multiple reasons. To begin with, consider its premise. According to the ACC and Futures Rep, they are parties to the case with notice and a meaningful opportunity to be heard, but they say they can just sit back and not present evidence and not be bound by whatever happens. That certainly seems rather absurd when the entire chapter 11 case was driven by present and future asbestos claiming. Indeed, the ACC spent several years contending that Grace is insolvent due to an alleged $ 6 billion or more of "asbestos liabilities." But, the ACC and the Futures Representative caved in and settled the present and future asbestos claims against Grace for far less than $ 6 billion after Grace went to enormous effort and expense to prove the bogus nature of many or most asbestos claims against it. The settlement in fact is said by Grace to have a present value of less than $2.5 billion and even the plaintiff's lawyers are said in this AmLaw article to have conceded the present value is less than $ 3 billion. And, when one looks at the settlement, only $ 250 million of present cash is being paid out by Grace itself before 2019- the deal,as described before here, is:

"The trust that will pay out asbestos claims will be funded by a $250 million cash contribution from Grace (payable on the company's emergence from Chapter 11); an additional $1.55 billion from Grace paid over 15 years, beginning in 2019; Grace's asbestos insurance coverage, worth an estimated $600 million; warrants to purchase Grace shares; and more than $1.2 billion in previous settlements with companies accused of fraudulently purchasing Grace assets."

It's rather hard to imagine that $ 250 million is even close to being the tipping point for Grace between solvency and insolvency.

The motion of the ACC and the Futures Representative also is striking for what it says about bankruptcy court proceedings. If anyone can figure out whether any entity such as Grace is or is not solvent, doesn't it make sense that it might be an experienced bankruptcy judge? And, if the court does make findings on solvency, why wouldn't the findings bind parties such as the ACC who were given meaningful prior notice of the hearing and the opportunity to participate in the hearing ?

As referred to above, another question of course is: why have the ACC and the Futures Representative asked the bankruptcy court to order that its findings on solvency should not mean anything anywhere else in the world. And, why would Grace not object to the motion when it has spent several years in arguments denying the extent of its alleged "asbestos liabilities" and, thus, its insolvency ?

In my opinion, the motivation for the motion is that a bankruptcy court finding that Grace is solvent would create an inconvenient truth for asbestos plaintiffs. Why? My view is that the asbestos plaintiff's bar does not want Grace found solvent because that ruling would have an adverse impact in state court asbestos tort cases where various state law rules apply to the allocation of damages and/or fault to solvent and insolvent entities.

Specifically, so long as Grace is viewed as insolvent, the laws of some states will completely block or limit the ability of co-defendants in asbestos trials to have financial liability or fault allocated to Grace. But if Grace is deemed solvent, those joint and several liability rules may not be applied and then co-defendants could use trial to have fault or damages attributed to Grace even if Grace does not have to actually pay out any cash. For example, in some states, a trial finding that Grace is 50% or more at fault could cause other defendants to become only severally liable for economic losses equal to their allocated percentage of fault. Thus, a finding that Grace is solvent could and should cause plaintiffs in some individual cases to collect less money from co-defendants when a jury or judge finds that Grace in fact was at fault for a particular person's asbestos disease. In short, joint and several liability rules why the ACC and the Futures Representative filed their motion asking that the bankruptcy court to order the rest of the world not to pay any attention to what the bankruptcy court says about Grace's solvency.

The ACC/Futures Rep. motion to "pay no attention to the findings" also indirectly highlights other absurdities and inconsistencies in the relationships between and interactions of state and federal tort trials and chapter 11 proceedings. The absurdities arise in both chapter 11 cases actually caused by mass tort claiming and in chapter 11 cases such as GM and Chrysler where the chapter 11 case was not specifically caused by a mass tort problem but the chapter 11 case injunctions have huge impacts on underlying tort cases as they purport to cut off present and future rights to bring lawsuits against debtors, insurers and others. Trying to cover all the inconsistencies would require a book, but the following provides some examples.

One example of inconsistency arises from the positions the plaintiff's bar takes regarding the role of federal supremacy. In most state court tort cases, plaintiff's lawyers bitterly oppose federal supremacy and federal preemption. Time and again, plaintiff's lawyers argue that state law should control tort issues. And, in the GM and Chrysler chapter 11 cases, the ACC and other tort claimants argued at length that state law rights could not and should not be cut off by an order and injunctions issued in a chapter 11 judge court. And, in the future, tort claimants of all kinds no doubt will say that plaintiffs were denied due process in the GM and Chrysler cases, and are not bound by those federal court orders.

In other contexts, however, the plaintiff's personal injury bar and future's representatives go to great lengths to support the power of bankruptcy courts to issue sweeping orders binding everyone in the world to whatever went on the bankruptcy court. In asbestos bankruptcies, the plaintiff's bar time and again argues that bankruptcy courts can and should deem themselves to have incredibly broad powers to create billion dollar trusts to help debtors exit chapter 11 and at the same time pay money to real - and not real - "victims." Along the road to the creation of such trusts, plaintiff's lawyers unabashedly sell the certainty created by the bankruptcy court injunctive orders under section 524(g) of the bankruptcy code. Look back at the terms of the Grace deal above - the plaintiffs bar sold certainty to Grace, to insurers, and to entities that bought assets from Grace.

Particularly worth noting is the way the plaintiff's bar sells certainty to insurers. The deal invariably is: agree to pay $ x now, $ x over ___ future years, and then you, the insurance company, can have the benefit of a federal court injunction protecting your company and its insurance policies from any more lawsuits involving asbestos or any other tort claims arising from the debtor. That certainty, it is said, will protect the insurer against "direct action" claims by plaintiffs, against contribution claims by other insurers, and against claims arising from what the insurer may or may not have hidden from the public. Indeed, being able to sell that kind of certainty was the central point of the facts related to this year's Supreme Court opinion in the Manville/Travelers case, which I've touched on before at posts such as this one. Thus, in that context, plaintiff's lawyers embrace and extol federal bankruptcy court supremacy and want bankruptcy court orders to apply in every case and every time so that the plaintiff's can sell more certainty to more entities at higher prices. Thus, that's one example of glaring inconsistency as the plaintiff's bar extols federal supremacy in that setting, but denies it in other state court settings and seeks to moot it through their motion to "pay no attention to the findings." (And by the way, the Supreme Court's oral argument questions - and its opinion - in Manville/Travelers both reflect the Court's lack of a meaningful record on or other knowledge of what actually happens in the chapter 11 mass tort cases that some of the justices characterized as "mysterious.")

3) Conclusion

The plaintiff's bar is enormously clever and creative. They have created two different compensation systems - one composed of $ 30 billion or more of asbestos trusts and the other composed of ordinary tort law suits. To better serve their clients and their own pocketbooks, the plaintiff's bar seeks to keep the two compensation systems apart so that they can have their cake and eat it too (a phrase Bates White has been the first and most public to apply to the situation). The motion to "pay no attention to the findings" is merely one of the more recent examples of how the two systems can be and are in fact being gamed. How can this happen? Because the two different systems are run by judges who have little or no detailed understanding of what is happening in the other system, and because almost all bankruptcy and state court trial court judges view their primary job as getting individual cases resolved, regardless of the consequences for others.

One final thought. Doesn't the motion bring to mind the Wizard telling Dorothy and the others to pay no attention to the man behind the curtain?

# 2 - Want More on the Interplay Between Asbestos Trusts and Litigation ? Attend the Lexis/Nexis International Asbestos Seminar - London- 9/29- 30

(Caveat - the following includes shameless self-promotion.)

Asbestos litigation, and asbestos trust issues, are no longer uniquely American issues. To the contrary, asbestos litigation and asbestos trusts are growing rapidly outside the US.

Really ? Yes. Due to soaring mesothelioma rates that will not peak until 2020 or so, asbestos litigation is climbing rapidly across the EU (especially in the UK) and in Australia. There also are a close to a couple of hundred asbestos claims pending in Japan and a handful starting in Korea. Future claims are a certainty because asbestos use has for years been rising rapidly across Asia and Russia, not to mention ship-breaking and other activities in which asbestos is often removed in terribly primitive and unsafe conditions.

Asbestos trusts also are global, in at least three way. First, Manville and other trusts take claims from around the world and are receiving materially increasing amounts of claims. Second, as part of the Federal-Mogul bankruptcy, a trust was set up under UK law for claims arising from Turner & Newall. Third, private trusts have been set up by entities hoping to limit or avoid litigation. The trusts take claims arising from Cape, James Hardie and Eternit, among others.

Multinationals, insurers, Wall Street and lawyers are missing a significant part of the asbestos picture if less than a global view is being taken. The answer? Attend the Lexis/Nexis seminar on 29 and 30 September in London on International Asbestos Claiming. Yours truly is chairing the seminar. I think an excellent panel of lawyers is on tap from around the world, including David Miller, an authority on asbestos litigation in Australia, and Rod Freeman, an authority on product liability and asbestos litigation in the EU. And, because the US litigation s part of the world view, Motley Rice's Anne Kearse and Shook Hardy's Mark Behrens will speak from their divergent perspectives. I will speak on international asbestos trust issues and hopefully will challenge other speakers with some good questions. And, finally, Selvyn Seidel of Burford Advsiors will speak about third-party litigation funding - a topic everyone should know about because it's going to change the world of litigation in a big way.

The general website for the seminar is here, the agenda is here, and the roster of speakers is here.

Want More on the Interplay Between Asbestos Trusts and Judicial Proceedings ? Go to the HB Asbestos Seminar in San Francisco 9/23-9/25

As posts on this blog reflect, there are in my view enormous issues out there regarding the interplay between asbestos trusts (mainly chapter 11 trusts) and the state court tort system. Happily, asbestos litigation seminars are paying an increasing amount of attention to the issues arising from the two parallel compensation systems. Two upcoming seminars offer great opportunities to learn more about the asbestos bankruptcy issues and much more.

Here are some specifics for the first of the two seminars:

1) HB Asbestos Litigation Conference Sept. 23-25 in San Francisco

The HB group took over from Mealey's and is running an upcoming 3 day asbestos litigation seminar. The program in general is excellent and is of special interest to me because of its focus on asbestos bankruptcy issues and because one of the chairs is fomer Chicagoan, Joe O'Hara, a lawyer who has tried asbestos cases for years for Owens-Illinois. Joe is now the Asssociate General Counsel for Owens-Illinois and a great lawyer I've known for more years than I want to admit. Joe and OI are very tuned in to the asbestos bankruptcy issues, and so the seminar program includes two Sept. 23 sessions focused on asbestos trusts and asbestos bankruptcy issues. In addition, numerous state court judges will be there and will end up hearing and/or saying a lot about these issues. Despite lots of other competing life events at that time, the sessions look so good to me that I'm flying out for just that day.

The specifics for the two asbestos trust and bankruptcy sessions are as follows; the speakers are quite knowledgeable:


2:30 Asbestos Claims Processing

•What bankruptcy trusts are operating and what are they paying?
• Timing of claims filing
• Best Practices – efficient methods for claim submissions
• Avoiding mistakes – areas of concern for claimant processing & payment
• W-9 forms, tax issues, 1099’s to clients
• TDP’s and processes within that may benefi t defendants
• Accounting for the money still in trust, the value of average mesothelioma claims & future projections on claims vs. assets and funds availability in trust

Francis McGovern, Esq., Professor of Law, Duke University School of Law
Larry Haden, President, Claims Resolution
Nicholas Vari, Esq., K&L Gates


3:45 The Surge in Bankruptcy Trust Payouts: Can You Make Everyone Happy? Maximizing Recoveries and Creating Fair Credit Allocation

• What adjustments should be made in the tort system to account for the bankruptcy payouts?
• What disclosure obligation should exist regarding pending trust claims, actual payouts, and expected future trust fi lings?
• Should the tort system encourage or leverage plaintiffs to file claims with the Trusts before the claims leave the system?
• Third party practice and the Defendants’ interaction with the Trusts

Moderator: Joseph O’Hara, Jr., Esq., V.P. & Associate G.C., Owens-Illinois
Hon. Richard Aulisi, Supreme Court Justice, 4th Judicial District of New York
Hon. Ken Kawaichi, (Ret.), JAMS
Hon. James McBride, Superior Court of California
Joseph Belluck, Esq., Belluck & Fox LLP


To register, the HB home page is here. The entire asbestos agenda is here. In this tough yuear for budgets, note that inside counsel from corporations and insurers are invited to attend free of charge.

AWI Asbestos Personal Injury Trust Selling Shares Under Prepaid Variable Forward Sales Contract - Is This The Way a Court-Ordered Trust Should Work ?

When and how does an asbestos trust own enough shares of the company for which it assumed "asbestos liabilities" ? And, should chapter 11 trusts be involved in transactions of a type that some say are sometimes tax dodges?

These questions are posed for several reasons. One is that under bankruptcy code section 524(g), a chapter 11 asbestos trust is required to own prescribed amounts of shares of stock of the company for which it assumed asbestos obligations. That rule, some say, is mainly honored in the breach.

Another reason for posing the questions is that it is interesting to watch the ways in which the trusts sometimes act much like, if not exactly like, the corporate financiers that plaintiff's lawyers often trash in the course of jury trials. How so? Below are the facts and links regarding the AWI Trust recently using a prepaid variable forward sales contract to cause the more or less sale of shares of AWI.

What is a prepaid variable forward sales contract? It is one of the many exotic financial paper created by Wall Street to create new ways to own and sell shares of stock without, they say, selling shares. (One is reminded of Humpty Dumpty's scornful proclamation " When I use a word, it means just what I choose it to mean -- neither more nor less." )

The IRS has declared a war of at least strict scrutiny on these transactions as potentially or actually illegal tax shelter transactions, as described here by the TaxProfBlog and here by the NYT. This WSJ article explains that the transactions also have been attacked as tools used by executives to sell shares ahead of price drops without really selling shares, they say.

Call me naive, but doesn't it seem odd that trusts operating under the aegis of federal courts would engage in transactions of a type the IRS deems dubious ? No doubt the trustees and the trust advisory committee would counter that they have a fiduciary duty to make money for claimants. Maybe true, but that sounds an awful lot like the corporate argument that we have a duty to our shareholders to make money. In personal injury jury trials involving risks and cost benefit analysis, plaintiffs love to attack the corporate duty to make money argument as putting profits ahead of people, or profits ahead of morals.

On the subject of the AWI Trustees and the Trust Advisory Committee (TAC ) wouldn't you think the Trust's website would identify them? If it does, I sure can't find the names anywhere despite using the search box on the website to search for names including Kazan, Weitz and Cooney. I dropped the trust an email this morning asking for the names and whether I missed them on the website. We will see if an answer comes back.

____________________________________________

On August 11, Armstrong World Industries announced that its Asbestos Trust is raising $ 180 million in cash by selling some shares outright and more shares pursuant to a prepaid variable forward sale contract that is said to be part of reinvigorating AWI. According to the press release from Armstrong World Industries:

"Armstrong World Industries Comments on Sale of Asbestos Trust Shares to TPG
LANCASTER, Pa., Aug. 11 /PRNewswire-FirstCall/ -- TPG Capital ("TPG") announced it has agreed to purchase seven million shares of Armstrong World Industries, Inc. ("Armstrong") (NYSE: AWI), and economic interests in an additional 1,039,777 shares, from the Armstrong World Industries Inc. Asbestos Personal Injury Settlement Trust ("the Trust"). TPG's purchase price per share of $22.31 is the 20-day trailing volume-weighted average price through Friday, August 7. The transaction is expected to be completed during the next several weeks, and will result in approximately $180 million of proceeds for the Trust. (emphasis added). "


A form 4 from the Trust explains the transaction as follows:

"Explanation of Responses:
1. On August 10, 2009, the reporting person entered into a prepaid variable forward sale contract with TPG Partners V, L.P. and TPG Partners VI, L.P. (collectively, "TPG"). The contract obligates the reporting person to deliver to TPG 1,039,777 shares of AWI common stock (or cash as provided in the contract) on the maturity date of the contract. The maturity date is the 20th trading day beginning on November 4, 2013. In exchange for assuming this obligation, the reporting person will receive $23,197,425 at closing of the contract.
2. The reporting person pledged 1,039,777 shares of AWI common stock (the "Pledged Shares") to secure its obligations under the contract. While the reporting person retained dividend and voting rights in the Pledged shares during the term of the pledge, the reporting person is obligated to pay TPG dividends received on such shares and is party to a shareholders agreement with TPG relating to such shares.
3. The settlement price will be based on the 20 day AWI common stock price preceding the settlement transaction date, and the contract can be settled in cash or in the release of sufficient Pledge Shares to satisfy the settlement payment (as determined at the settlement price)."