U.S. House of Representatives

Committee on the Judiciary

Henry J. Hyde, Chairman www.house.gov/judiciary

For immediate release June 30, 1999

Contact: Michael Connolly (202) 225-2492

Judiciary to Examine Hyde's Alternative Dispute Resolution Legislation for Asbestos Lawsuits

A. Asbestos

Asbestos is a fibrous mineral that has been used as insulation and as a fire retardant in a wide variety of applications. Because of its fibrous nature, asbestos can produce dust that, when inhaled, becomes deposited in the lungs. It can cause or contribute to the development of asbestosis, a fibrous scarring of the lungs; lung cancer in persons who smoke; and mesothelioma, a malignant tumor in the lining of the lungs or the abdominal cavity. While in the 1930s some epidemiological studies linked asbestos exposure to the development of disease, it was not until the late 1960s or early 1970s that the potential effects of asbestos exposure became widely known and that personal injury lawsuits based upon asbestos exposure became commonplace.

The widespread use of asbestos in manufacturing in the United States ended in the 1970s, and since then, workplace exposures have been strictly regulated by the government. Several federal and state agencies have the authority to regulate asbestos, most notably the Occupational Safety and Health Administration (OSHA) and the U.S. Environmental Protection Agency (EPA). Since peak consumption in 1973, there has been more than a 97% reduction in the domestic use of asbestos. Further, the manufacture of "friable" asbestos products (material that can be crumbled by hand pressure, releasing asbestos fibers into the air), which pose the highest risk of exposure, has been virtually eliminated in the United States. Today, the production and consumption of asbestos is at a historic low, with substitute materials now taking its place in most instances.

B. Judicial Conference Ad Hoc Committee

By the late 1980s, the sheer number of asbestos personal injury cases in the federal and state courts had presented serious caseload and backlog problems. In September 1990, responding to the burden that asbestos litigation was placing on the federal courts, Chief Justice William Rehnquist appointed an Ad Hoc Committee on Asbestos Litigation. The committee was composed of seven federal judges and was chaired by Fifth Circuit Appeals Court Judge Thomas M. Reavley. The committee made its report to the Chief Justice and the members of the Judicial Conference of the United States in March 1991. The committee's report contained the following observation, and recommendation:

"The most objectional aspects of asbestos litigation can be briefly summarized: dockets in both federal and state courts continue to grow; long delays are routine; trials are too long; the same issues are litigated over and over; transactions costs exceed the victims' recovery by nearly two to one; exhaustion of assets threatens and distorts the process; and future claimants may lose altogether.

It is easy to describe the problems. It is not easy to fashion an appropriate remedy in the context of our federal system.

The committee firmly believes that the ultimate solution should be legislation recognizing the national proportions of the problem both in federal and state courts and creating a national asbestos dispute resolution scheme that permits consolidation of all asbestos claims in a single forum -- whether judicial or administrative -- with jurisdiction over all defendants and appropriate assets." Report of the Judicial Conference Ad Hoc Committee on Asbestos Litigation (March, 1991), p. 3.

In the 102nd Congress, the Subcommittee on Intellectual Property and Judicial Administration of the House Judiciary Committee held hearings focusing on the impact of asbestos litigation on the federal and state courts and on the findings of the Ad Hoc Committee's report. However, no legislation was introduced to implement the recommendations of the Ad Hoc Committee and no further legislative action was taken following those hearings.

C. The "Georgine" Class Action Settlement

At approximately the same time that the Ad Hoc Committee issued its report, the Judicial Panel on Multi-District Litigation ("MDL Panel") decided to consolidate all pending federal asbestos cases in a single judicial district. The MDL Panel transferred those cases to the Eastern District of Pennsylvania. Steering Committees for the plaintiffs and defendants were formed and began global settlement negotiations. When those broad-based negotiations reached an impasse, plaintiffs' class counsel and representatives of the Center for Claims Resolution (CCR) -- which comprised twenty defendant companies -- began negotiations to resolve CCR's asbestos liability. After a year of discussions, the two sides reached a settlement agreement and filed a class action. The settlement agreement also received the backing of the Building and Construction Trades Department of the AFL-CIO and, subsequently, the settlement became known as the "Georgine settlement"-- named for the President of the Building and Construction Trades Department, Robert A. Georgine.

The stipulation of settlement filed proposed to establish an administrative procedure providing compensation for claimants meeting specified exposure and medical criteria. If the criteria were met, the stipulation provided compensation for four categories of disease: mesothelioma, lung cancer, certain "other cancers" and non-malignant conditions (asbestosis and bilateral pleural thickening). The stipulation provided for objective criteria for medical diagnosis. For those claimants that qualified, the stipulation fixed a range of damages that the CCR would award for each disease. The stipulation also placed caps on the amount that a particular victim could recover and on the number of qualifying claims that would be paid in each year. In addition, the stipulation had a procedure for "extraordinary" claims where claimants could be awarded more than the fixed cap.

Importantly, the stipulation also tolled all statutes of limitations, so that any claim that was not time-barred when the class action was commenced could be filed at any time in the future. Thus, unlike the tort system, where claimants were forced to rush to file suit on the discovery of changes in their lungs, under the stipulation claimants did not have to submit their claims until they actually developed an impairing illness. The stipulation also provided for "comeback" rights so that claimants who had been compensated for a non-malignant condition could file a second claim and receive further compensation if they later developed asbestos-related claims. It has been estimated that almost 100,000 claims would have been paid under the proposed Georgine settlement.

The stipulation of settlement was approved and the settlement class was certified on August 16, 1994. Georgine v. Amchem Products, Inc., 157 F.R.D. 246 (E.D. Pa. 1994). However, certain persons who would have been members of the affected class under the settlement, objected to the parties' subsequent motion for a preliminary injunction that would have barred class members from initiating claims against any CCR defendant pending a final judgment in this case. See Georgine v. Amchem Products, Inc., 878 F. Supp. 716 (E.D. Pa. 1994). On appeal, the Third Circuit Court of Appeals overturned the settlement agreement, finding that it failed to meet the commonality and predominance requirements of Federal Rule 23(a) and 23(b)(3). Georgine v. Amchem Products, Inc., 83 F.3d 610 (3rd Cir. 1996). Essentially, the Court determined that the class was too large and too disparate to meet the requirements of Federal Rule 23. In the course of his opinion, however, Judge Becker made numerous favorable comments about the innovative approach taken in the Georgine settlement and, in fact, referred to it at one point as an "arguably brilliant partial solution" to the asbestos litigation crisis. 83 F.3d at 617. Nevertheless, the Court felt obligated by a literal interpretation of Federal Rule 23 to overturn the settlement.

In June 1997, the Supreme Court affirmed the Third Circuit's decision that the settlement class failed to meet the requirements of Federal Rule 23. Writing for the Court, Justice Ruth Bader Ginsburg suggested that Congress might be the most appropriate body to resolve the asbestos litigation crisis:

"The argument is sensibly made that a nationwide administrative claims processing regime would provide the most secure, fair and efficient means of compensating victims of asbestos exposure. Congress, however, has not adopted such a solution. And Rule 23 . . . cannot carry the large load heaped upon it." Amchem Products, Inc. v. Windsor, 138 L. Ed. 2d 689, at 716 (1997).

D. The "Fibreboard" Class Action Settlement

Fibreboard Corporation, an asbestos manufacturer, was locked in litigation for decades. Plaintiffs filed a stream of personal injury claims against it, swelling throughout the 1980's and 1990's to thousands of claims for compensatory damages each year. Fibreboard engaged in litigation with its insurers, Continental Casualty Company and Pacific Indemnity Company, over insurance coverage for the personal injury claims. In 1990, a California trial court ruled against Continental and Pacific, and the insurers appealed.

At around the same time, Fibreboard approached a group of asbestos plaintiffs' lawyers, offering to discuss a "global settlement" of Fibreboard's asbestos liability. Negotiations at one point led to the settlement of some 45,000 pending claims, and the parties eventually agreed upon $1.535 billion as the key term of a "Global Settlement Agreement." Of this sum, $1.525 billion would come from Continental and Pacific, which had joined the negotiations, while Fibreboard would contribute $10 million, all but $500,000 of it from other insurance proceeds. At plaintiffs' counsels' insistence, Fibreboard and its insurers then reached a backup settlement of the coverage dispute in the "Trilateral Settlement Agreement," under which the insurers agreed to provide Fibreboard with $2 billion to defend against asbestos claimants and pay the winners, should the Global Settlement Agreement fail to win court approval.

Subsequently, a group of named plaintiffs filed the present action in Federal District Court, seeking certification for settlement purposes of a mandatory class that comprised three groups--claimants who had not yet sued Fibreboard, those who had dismissed such claims and retained the right to sue in the future, and relatives of class members--but excluded claimants who had actions pending against Fibreboard or who had filed and, for negotiated value, dismissed such claims, and whose only retained right is to sue Fibreboard upon development of an asbestos-related malignancy.

As finally negotiated, the Global Settlement Agreement provided that in exchange for full releases from class members, Fibreboard, Continental, and Pacific would establish a trust to process and pay class members' asbestos personal injury and death claims. Claimants seeking compensation would be required to try to settle with the trust. If initial settlement attempts failed, claimants would have to proceed to mediation, arbitration, and a mandatory settlement conference. Only after exhausting that process could claimants go to court against the trust, subject to a limit of $500,000 per claim, with punitive damages and prejudgment interest barred. Claims resolved without litigation would be discharged over three years, while judgments would be paid out over a 5- to 10-year period. The Global Settlement Agreement also contained spendthrift provisions to conserve the trust, and provided for paying more serious claims first in the event of a shortfall in any given year.

The District Court allowed petitioners and other objectors to intervene, held a fairness hearing under, Federal Rule of Civil Procedure 23(e), ruled that the threshold Rule 23(a) numerosity, commonality, typicality, and adequacy of representation requirements were met, and certified the class under Rule 23(b)(1)(B). In response to intervenors' objections that the absence of a "limited fund" precluded Rule 23(b)(1)(B) certification, the District Court ruled that both the disputed insurance asset liquidated by the $1.535 billion global settlement, and, alternatively, the sum of the value of Fibreboard plus the value of its insurance coverage, as measured by the insurance funds' settlement value, were relevant "limited funds." The Fifth Circuit affirmed both as to class certification and adequacy of settlement. Agreeing with the District Court's application of Rule 23(a), the Court of Appeals found, inter alia, that there were no conflicts of interest sufficiently serious to undermine the adequacy of class counsel's representation. As to Rule 23(b)(1)(B), the court approved the class certification on a "limited fund" rationale based on the threat to other class members' ability to receive full payment from Fibreboard's limited assets. The Supreme Court then decided Amchem Products, Inc. v. Windsor, 521 U.S. 591, 117 S.Ct. 2231, 138 L.Ed.2d 689, vacated the Fifth Circuit's judgment, and remanded for further consideration in light of that decision. The Fifth Circuit again affirmed the District Court's judgement on remand.

On June 23, 1999 the Supreme Court reversed and remanded the Fifth Circuit's decision affirming the District Court's class certification because the class failed to meet the requirements of Federal Rule 23. Writing for the Court, Justice David Souter suggested that Congress might be the most appropriate body to resolve the asbestos litigation crisis:

"Like in Amchem Products, Inc. v. Windsor, 521 U.S. 591 (1997), this case is a class action prompted by the elephantine mass of asbestos cases, and our discussion defies customary judicial administration and calls for national legislation." Ortiz v. Fibreboard Corp. et al., No. 97-1704, 1999 WL 412604, at 5 (U.S. June 23, 1999).

Chief Justice William Rehnquist, joined by Justices Scalia and Kennedy, also called for a legislative solution in a concurring opinion:

Under the present regime, transactional costs will surely consume more and more of a relatively static amount of money to pay these claims. . . But we are not free to devise an ideal system for adjudicating these claims. Unless and until the Federal Rules of Civil Procedure are revised, the Court's opinion correctly states the existing law, and I join it. But the 'elephantine mass of asbestos cases,' . . . cries out for a legislative solution." Id at 24, 25.

II. THE BILL -- 1283

A. Summary

H.R. 1283 would establish a national claims facility that would resolve asbestos injury claims. The non-judicial administrative process proposed in the legislation would be funded entirely by the defendant companies -- no taxpayer dollars would be required. A claimant would be entitled to compensation only if he or she can demonstrate physical impairment as a result of their exposure to asbestos. Impairment would be determined on the basis of the Georgine medical criteria. Further, defendant companies would not be able to assert the statute of limitations as a defense with respect to claims that were not already barred as of the date of enactment. Similarly, claimants could recover for nonmalignant disease such as asbestosis without losing their right to future compensation for cancer, just as under the Georgine settlement. Punitive damages and mass consolidations would be prohibited, so as to ensure that funds would be available to compensate people who may in the future become impaired by asbestos-related diseases. Finally, the legislation would help control excessive transaction costs by capping attorneys' fees and expenses at 25% of the recovery.

B. Specific Provisions

The compensation program would be administered by a quasi-government corporation, the "Asbestos Resolution Corporation" or "ARC" (Sections 101; 102). The ARC would be governed by a seven member Board of Directors appointed by the President with the advice and consent of the Senate (Section 103). The Board would oversee the administration of the ARC and supervise the implementation of the claims procedure. It will have the authority to hire officers and other employees and to contract for outside services, including those with doctors, mediators, and arbitrators (Section 102(b)). The Board would also establish a Medical Advisory Board to provide expert advice on medical matters (Section 105).

The first stage of the compensation program would be a determination of the claimants' medical eligibility -- i.e. whether or not the claimant meets the requirements for one of the four eligible medical categories -- mesothelioma, asbestos-related lung cancer, certain other cancers, and certain non-malignant conditions (such as asbestosis or impairing bilateral plural thickening related asbestosis)(Sections 201-204). This determination would be made in a nonadversarial proceeding designed to ensure that medical determinations are made by qualified non-biased personnel. The claimant would commence the proceeding by filing an application that would provide the information necessary for a medical evaluation (Section 205(a)). The claim would first be reviewed by a claims analyst who would determine whether or not the claim met the medical criteria. If a claim is initially denied, the claimant could request reconsideration and the ARC would then refer the matter to a panel of two board certified physicians (Section 205(g)). In the event of a disagreement between those physicians, a third doctor would be added before a decision is rendered. The claimant may then file in the proper United States District Court for review of a decision rendered by the panel of three board certified physicians. If a claimant concedes that he or she does not meet the medical criteria or is found not to meet the medical criteria after reconsideration, the claimant may seek a ruling from an Exceptional Medical Claims Panel that their claim otherwise qualifies for compensation (Section 206).

If a claim qualifies either under the medical criteria or is an exceptional medical claim, the ARC would issue a certificate of medical eligibility which would state the qualifying condition or conditions for the claimant (Section 205(f)). Once the ARC issues a certificate of eligibility, the claimant and prospective respondents would engage in an ADR process designed to promote a prompt resolution of the claims (Sections 301-308). After the claimant's medical eligibility is certified, potentially liable respondents would be brought into the proceeding. Section 303-304. After all respondents had been named there would be a 60-day grace period for the parties to reach settlement without the help of the mediator (Section 305).

Parties who are unable to settle during the grace period would be required to use mediation to promote early settlement (Section 306). The time allowed for mediation would be 60 days from the end of the grace period (Section 306(c)). The mediator could extend this time, however, if the claimant fails to provide necessary disclosure in good faith, if the extension of time would allow for simultaneous mediation of a group of claims, or for other good cause. Fifteen days prior to close of the mediation period, the parties would be required to make final good faith offers and demands. (Section 306(e)). In order to ensure that settlement offers are made in good faith, any respondent would be subject to a 10% penalty if it failed to make an offer that is within 25% of the eventual award or judgement against the respondent (Sections 307(j); 404).

Following mediation, claimants could choose either to bring a lawsuit or to engage in arbitration (Section 306(f)). Arbitrations will be paid for by the respondents who have not settled prior to arbitration (Section 307). Should the claimant so choose, he or she could file a claim in state or federal court. A certificate of medical eligibility and a release from mediation are prerequisites for such filings in court (Section 401). Individual trials would be required unless the defendants agreed to consolidation or another aggregated technique (Section 402).

All administrative costs of the ARC would be paid for by respondents in proceedings before the ARC (Section 601). In addition, asbestos defendants have agreed to pay startup costs of the ARC pursuant to a voluntary agreement that would be in place before the ARC becomes operational (Section 601(c)).

With respect to pending cases, H.R. 3905 would not require plaintiffs to obtain a certificate of medical eligibility in any case that is pending on the date of enactment and commences trial prior to the operational date -- i.e. the date on which the Board of Directors certifies that the ARC is operational or seven months after the date of enactment, whichever comes first (Section 702(a)). Moreover, no plaintiff in a case pending on the date of enactment would be required to obtain a release from mediation regardless of whether trial commences prior to the operational date. As to actions filed after the date of enactment, however, both a certificate of medical eligibility and release from mediation would be required (Section 401).

III. CONCLUSION

With the attempted settlement in the Amchem case having failed to meet the technical requirements of Federal Rule 23, Congress needs to determine whether or not a legislative solution to the asbestos injury claims problem is warranted. Many believe that the scope of asbestos litigation in the state and federal courts has risen to the level of a national crisis. The most recent estimates are that over half a million asbestos personal injury lawsuits have been filed since the 1960s and that nearly 40,000 new cases are filed annually. Today, more than 150,000 asbestos cases are pending in the state and federal courts. Our hearing this Thursday will focus on this litigation crisis and the advisability of legislation that would in large part implement the key elements of the proposed Georgine class action settlement.

A copy of H.R. 1283, a hearing witness list, and a one-page synopsis of the issue and the bill can be found at the Judiciary Committee web site at www.house.gov/judiciary. Testimony will also be available on the web page at the conclusion of the hearing.