- Background and Mission
- Start up Operations of the Trust
- Settlement vs. Litigation
- Bankruptcy Court Intervention
- New Operational Mandates — the TDP
Background and Mission
In August 1982, Johns-Manville Corporation filed a petition for reorganization under Chapter 11 of the Bankruptcy Code which automatically suspended all personal injury lawsuits and allowed Manville Corporation (“Manville”) to reorganize, thus preserving its financial viability to compensate asbestos claimants.
In December 1986, the United States Bankruptcy Court for the Southern District of New York approved Manville’s Plan of Reorganization ( the “Plan”). A cornerstone of the Plan was the creation of the Manville Personal Injury Settlement Trust (the “Trust”) to compensate individuals suffering personal injury from exposure to asbestos or asbestos-containing products manufactured or sold by Manville. Following several appeals, the U.S. Court of Appeals for the Second Circuit confirmed the Plan on October 28, 1988. The Trust became operational thirty days later on November 28, 1988.
The Trust was created as an independent organization to distribute funds as equitably as possible while balancing the rights of current claimants against those of future, unknown claimants. The Trust’s mission is to “enhance and preserve the Trust estate” in order to “deliver fair, adequate and equitable compensation to (claimants), whether known or unknown.” The Trust was established as a negotiation based settlement organization pursuant to Plan provisions which made it clear that claimants did not need to litigate or threaten to litigate in order to negotiate a fair settlement.
Start up Operations of the Trust
Although not confirmed until October 1988, the Trust began operating in January of 1987, following the bankruptcy court’s appointment of trustees. During the first seven months of 1987, several consulting organizations assisted the trustees in handling a range of complex issues and developing a strategy for responding to the impending deluge of claims. In October 1987, the trustees hired an executive director, and within six months, the Trust had hired and trained nearly ninety-five employees and was prepared to settle claims.
In May 1988, the Trust began to negotiate settlements of the cases filed against Manville before August 1982, all of which had been stayed by the bankruptcy proceeding. Upon consummation of the Plan on November 28, 1988, the Trust was authorized to begin paying these pre-bankruptcy claims, subject to certain conditions, including the receipt of an individual proof of claim form and a signed release from each claimant. As of December 31, 1988, the Trust had settled over 12,600 claims for almost $500 million and had paid 1,200 claimants over $50 million. Claims were paid 100% of settlement value in first-in, first-out (FIFO) order. By mid-1989, an additional 48,500 post-bankruptcy claim forms had been received. By January 1992 more than 190,000 claimants were seeking compensation from theTrust.
Settlement vs. Litigation
Although some litigation against the Trust was contemplated by the crafters of the Plan, it was recognized that substantial litigation against the Trust would be operationally unmanageable and financially detrimental. The Plan authors wanted the Trust to be a negotiation-based settlement organization. However, three factors led to the Trust’s inundation with active litigation. The first was purely operational: the Plan permitted claimants to sue the Trust 120 days after filing their claims if they had not received a settlement offer. Because the Trust had received such an enormous volume of claims and was unable to make offers on all of them within 120 days, many claimants exercised their right to sue in order to improve their position in the FIFO queue.
The second factor influencing the volume of litigation was an acceleration in the volume of cases tried in the courts compared to the relative handful of asbestos cases that came to trial during the mid-1980s. On the 240th day after Consummation, July 28, 1989, co-defendants in the asbestos litigation were permitted to implead the Trust as a third party in the ongoing litigation. By December 1989 the Trust had been impleaded in and was forced to defend 89,000 cases nationwide. This unprecedented volume had not been anticipated, and the Plan did not allow modification of the Trust’s operations to accommodate the problem.
Finally, as the Trust’s initial cash funding dwindled and it became readily apparent that its assets were insufficient to pay its liabilities, the “race to the courthouse” became a stampede.
Bankruptcy Court Intervention
In July 1990, the Honorable Jack B. Weinstein, U.S. District Judge for the Eastern District of New York, was granted jurisdiction over the Trust. Judge Weinstein issued a stay on all Trust payments except exigent health and financial hardship settlements. During the next five months Manville Corporation, court-appointed representatives of current and future claimants, and the Trust, negotiated a restructured financial agreement and claims settlement process.
In November 1990, the Trust was judicially determined to be a “limited fund” and a class action designed to reorganize the Trust claims settlement and payment process was filed in the Eastern and Southern Districts of New York. A settlement of the class action was approved by Judge Weinstein in June 1991 (Findley v. Blinken, 129 B.R. 710 (E. & S.D.N.Y. 1991). In December 1992, the Second Circuit Court of Appeals vacated and remanded the case to Judge Weinstein for further negotiations (Findley v. Blinken, 928 F.2d 721; modified, 993 F.2d 7 (2nd Cir. 1993).
New Operational Mandates — the TDP
Following remand, negotiations continued through 1993 and the first half of 1994 ( the case name changed to Findley v. Falise), and in July 1994, a new settlement was reached. Fairness hearings were held during November. On January 19, 1995, Judge Weinstein approved the class action settlement which altered the Trust’s claim settlement and distribution process. In re Johns-Manville Corporation, 878 F.Supp. 473 (E. & S.D.N.Y. 1995). The settlement, which included a revised Trust Distribution Process (the “TDP”), requires that the Trust’s assets be distributed to qualifying claimants on a pro rata share basis computed to equalize payments to present and future claimants at an initial level of 10% of total liquidated claim value. Claims are paid on a scheduled basis in accordance with seven disease categories, but claimants can refuse the Trust’s schedule-based offer and request individual evaluation and eventually ADR.
The settlement provided that the TDP would go into effect on February 21, 1995 unless the order was stayed. Though appeals were filed, no stay was granted and the Trust implemented the TDP procedures effective February 21, 1995. The Trust is still waiting for the Second Circuit to rule on the outstanding appeals, but strongly believes the settlement plan will ultimately be approved.
As of December 31, 1995, approximately 10 months following District Court approval of the class action settlement, the Trust had made offers or sent deficiency notices to 103,551 claimants, and had settled and paid over 55,000 claimants in excess of $270 million.
(As of December 31, 1995, the Trust had received over 280,000 claims. The Plan predicted the Trust would receive between 83,000 and 100,000 claims during the life of the Trust.)