Opposition by business creditors could doom a $2.5-billion bankruptcy settlement proposed this month by the Manville Corporation, including a fund of at least $125 million to reimburse school districts and others for the costs of removing asbestos.
At minimum, rejection of the plan by Manville’s bankers and other creditors would further delay the payment of compensation to property owners and workers suffering from asbestos-related cancers and other diseases, according to lawyers on all sides of the case.
“If there is no plan confirmed, the results will be disastrous, both for the banks and for the victims,” said Leon Silverman, the court-appointed lawyer who negotiated the settlement on behalf of present and future claimants. “The key is in the hands of the commercial creditors.”
Manville’s assets have been frozen since August 1982, when the company, anticipating billions in liability suits, filed its unprecedented bankruptcy petition. A profitable firm had never before sought protection under Chapter 11 of the federal bankruptcy laws to shield itself from litigation.
Interest Demanded
The commercial creditors, who were owed $450 million at that time, have demanded nearly $200 million in interest for the period after the bankruptcy petition was filed. Manville has offered to reimburse most of these original debts, but would pay the interest only if funds are left over after claims are paid to asbestos victims and those who have suffered property damage.
When the settlement plan was filed in federal bankruptcy court in New York, John J. Jerome, a lawyer representing the commercial creditors, announced plans for a new round of litigation to recover 100 percent of his clients’ claims.
This “could impede the settlement process,” said Ellen Chapnick, a lawyer representing’ school claimants. “Or it could be a negotiating ploy.” The outcome is impossible to predict, she added.
“We think it’s as fair an offer as we can make at this time,” said Ray Gomez, Manville’s vice president for corporate relations. “We’d like to make everyone happy. But the asbestos [health] claimants must be our highest priority.”
Vulnerability to Suits
Manville is vulnerable to liability suits, both as the nation’s largest asbestos manufacturer and as the firm whose officials allegedly suppressed medical evidence of the asbestos-cancer link beginning in the 1930’s. In the 1960’s, without the company’s cooperation, independent researchers confirmed that inhaling even small quantities of asbestos fibers can cause cancer in humans, as well as asbestosis, a debilitating and usually fatal lung disease.
Until the 1970’s, the product was used widely in construction and consumer products, including pipe insulation and ceiling materials In many school buildings.
Manville is currently the target of 17,500 lawsuits by asbestos victims and more than 9,000 property-damage claims, including 6,100 filed by school districts, totaling about $15-billion, according to Mr. Gomez.
‘Statesmanship’
Mr. Silverman praised “the property-damage claimants—the state attorneys general, the schools, the big cities, the hospitals—who have agreed to settle $86 billion in claims for $125 million and to subordinate themselves to the claims of asbestos victims.”
“That is a high degree of statesmanship,” he said. ''The commercial creditors, who will come out better and earlier, have made no such offer.”
Manville’s settlement plan would provide a $2-billion trust fund to compensate disease victims, financed with payments from insurance, assets on hand, 80 percent of the company’s stock, and 20 percent of its profits for the next 25 years.
After victims are compensated, leftover assets would go to pay property-damage claims, in addition to the initial fund of $125 million. But the amount of additional funds, if any, is impossible to predict because of uncertainty about the number of future asbestos-related cancers, which take 20 to 40 years to develop.
Thus, there is a risk that funds will be insufficient to pay future health- and property-damage claims, according to Mr. Silverman, who criticized the commercial creditors as “irresponsible” for refusing to compromise on their demands for full payment “up front.” Mr. Jerome, the lawyer for this group, could not be reached for comment.
Dividing the Pie
Ms. Chapnick said obstacles remain in determining how to distribute the $125-million fund among school districts, state and local governments, and others seeking repayment for expenses incurred in removing or containing asbestos.
But she declined to disclose any details about negotiations now under way to draw up guidelines on the allocation of property-damage repayments. She also declined to comment on whether the settlement proposal is fair to her clients.
Lawyers for the school claimants have previously argued that districts should receive the lion’s share of the property-damage settlement because the U.S. Environmental Protection Agency has required them to spend considerable sums to inspect and control asbestos in school buildings.
Disapproval by any of the interests represented in the bankruptcy case could delay, if not veto, the settlement plan. These groups include the health litigants, the property claimants, the commercial creditors, and Manville’s stockholders.
Members of each group will get a chance to vote on the plan, following an April 22 hearing on Manville’s forthcoming “disclosure statement” detailing who will get what. Approval by the property-damage claimants would require acceptance by a majority of claimants, representing at least two-thirds of total monetary claims.
If one or more of the groups object, the plan could still be approved under “cram-down” provisions of the bankruptcy law, according to Matthew Gluck, an associate of Mr. Silverman. But delays would be inevitable “once you get into a litigating position,” he said.
The stockholders, whose investments would be substantially devalued by the proposal, have also vowed to oppose the plan. But under bankruptcy law, their claims are accorded the lowest priority. Thus, their challenge is seen as less of an impediment to final approval than litigation by the commercial creditors.
Lawyers for the stockholders and the creditors have attacked the settlement’s proposed attorney fees, which range from 25 percent to 40 percent of the asbestos victims’ awards. These “contingency fees,” which are customary in personal-injury cases, could total in the hundreds of millions of dollars for minimal legal work, the critics charge.
Mr. Silverman called this complaint “a red herring,” arguing that the lawyers’ fees are to be paid out of the asbestos victims’ settlements, based on prior agreements. Reducing the fees would not release additional funds for the creditors or stockholders, he said.
He added that the lead attorneys for the health claimants have agreed to donate 25 percent of their fees to fund medical research on asbestos and to compensate workers who are barred from suing Manville because of state workers’ compensation laws.
