Appendix — Ortiz v. Fibreboard Corp., 117 S. Ct. 2503 (1997) (No. 96-1394)
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OFFRE OF THE CLERK -
In the
Supreme Court of the United States
OCTOBER TERM, 1996
ESTEBAN ORTIZ, ET AL.,
Petitioners
Vv.
FIBREBOARD CORPORATION, ET AL.,
Respondents
On Petition for a Writ of Certiorari to the
United States Court of Appeals for the Fifth Circuit
APPENDIX TO
PETITION FOR WRIT OF CERTIORARI
VOLUME II
(Pp. 209 - 435.)
FREDERICK M. BARON LAURENCE H. TRIBE
BRENT M. ROSENTHAL Counsel of Record
STEVE BAUGHMAN BRIAN KOUKOUTCHOS
BARON & BUDD, P.C. JONATHAN S. MASSEY
3102 Oak Lawn Avenue 1575 Massachusetts Avenue
Suite 1100 Cambridge, MA 02138 <2?
Dallas, TX 75219 (617) 495-4621 os ‘\\
(214) 521-3605 cor oo +
Counsel for Petitioners e oh Xe
March 3, 1997
nal
A em —__ ny a~ e
APPENDIX A
APPENDIX B
APPENDIX C
APPENDIX D
APPENDIX E
APPENDIX F
APPENDIX G
TABLE OF CONTENTS
Opinion and Order of the United
States Court of Appeals for the Fifth
Circuit (July 26, 1996) .... la-64a
Dissenting Opinion of Fifth Circuit
Judge Jerry E. Smith
(July 26, 1996) ....... 65a-148a
Memorandum Opinion of the United
States District Court for the Eastern
District of Texas
oe 149a-208a
Findings of Fact of the United States
District Court for the Eastern District
of Texas (July 27, 1995) 209a-435a
Conclusions of Law of the United
States District Court for the Eastern
District of Texas
fb. Sa 436a-479a
Supplemental Conclusions of Law of
the United States District Court for
the Eastern District of Texas (July 27,
ee ere ae 480a-487a
Judgment Approving Global
Settlement of the United States
District Court for the Eastern District
of Texas (July 27, 1995) . 488a-503a
APPENDIX H
APPENDIX I
APPENDIX J
APPENDIX K
APPENDIX L
APPENDIX M
APPENDIX N
Judgment Regarding Class
Certification of the United States
District Court for the Eastern District
of Texas (July 27, 1995) 504a-Sila
Judgment on Attorney’s Fees of the
United States District Court for the
Eastern District of Texas (Aug. 29,
RE ss bided-e'b 6 dears 512a-Sl4a
Order Provisionally Certifying Class
for Settlement Purposes of the United
States District Court for the Eastern
District of Texas
OE. 515a-518a
Order Denying Suggestion for
Rehearing En Banc of the United
States Court of Appeals for the Fifth
Circuit (Nov. 26,
Se La iewhewekeee 519a-522a
Order Denying Application for Panel
Rehearing of the United States Court
of Appeals for the Fifth Circuit (Dec.
Dy SPOR CNee baw eaves 5$23a-524a
Constitutional Provisions, Statute, and
Rules Involved ....... §25a-527a
Class Action Complaint (Sept. 9,
By eee a ee a 528a-542a
— a oT
APPENDIX O
APPENDIX P
APPENDIX Q
APPENDIX R
APPENDIX S
APPENDIX T
APPENDIX U
Motion for Leave to Intervene by
Continental Casualty Co. and Pacific
Indemnity Co.
6 3. 543a-546a
Joint Motion for Provisional Class
Certification
a 547a-5Sla
Excerpts from Testimony of
Fibreboard Counsel Stephen Snyder
(Dec. 12, 1994) ....... 552a-553a
Excerpts from Testimony of CNA
Counsel Meyer Koplow
fo. rerrere 554a-556a
Excerpts from Testimony of Class
Counsel Harry Wartnick
(Dec. 13, 1994) ....... 557a-558a
Trust Distribution Process from
Global Settlement Agreement
CRUD. Bas ESPEN cc ccnees 559a-597a
Excerpt from Transcript of Sept. 9,
1993 Hearing of United States
District Court for the Eastern District
of Texas
SS ee 598a-600a
eee
209a
APPENDIX D
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS
TYLER DIVISION
x
GERALD AHEARN, JAMES DENNIS,
CHARLES W. JEEP, JAMES ELLISON
and WILLIAM JAMES MITCHELL, on
Behalf of Themselves and Others Similarly
Situated, : Civil Action
Plaintiffs : No.
v : 6:93cv526
FIBREBOARD CORPORATION and
BETHLEHEM STEEL CORPORATION
Defendants,
CONTINENTAL CASUALTY COMPANY;,:
CNA CASUALTY COMPANY OF
CALIFORNIA, COLUMBIA CASUALTY :
COMPANY and PACIFIC INDEMNITY
COMPANY, Defendant-Intervenors. :
OWENS-ILLINOIS, INC., on Behalf
of Itself and Others Similarly Situated,
Additional Counterclaim
Defendant.
210a
FINDINGS OF FACT
July 27, 1995
TABLE OF CONTENTS
Page
I. pops et ree rey oy Pee Pe l
II. HISTORY OF ASBESTOS LITIGATION ...... 5
A General Background ..............55:: 5
B. Fibreboard Background .............. 14
Ill. ©FIBREBOARD INSURANCE COVERAGE .... 21
LITIGATION AND ATTENDANT RISKS .... . 21
IV. FIBREBOARD’S RESPONSE TO ASBESTOS
LITRGEEEE Cb Vt eee badee ieeksbeeseee el 33
A. The Fibreboard Structured Settlement
FURR v.50 baie cc OU) Ra N be eek s 33
B. The Fibreboard-Continental “Interim
ROE, vk aced caw csbsives: 36
C. Fibreboard-Pacific Negotiations and the
Fibreboard-Pacific Agreemems ......... 39
D. The Fibreboard Assignment Settlement
Program and Related Litigation ........ 42
mS eee aL
-
j
‘
’
|
|
Vil.
Vil.
IX.
Zila
HISTORY OF GLOBAL SETTLEMENT
RE a le 50
A. Early Global Negotiations (1990-1992) .. 50
B. The Initial Ness Motley Agreement ..... . 62
C. Negotiations During 1993............. 63
1. Early 1993 to April 9, 1993 ...... 63
2. April 9, 1993 to August 9, 1993 .. 72
3. August 9, 1993 to August 27, 1993 83
4. August 27, 1993 to December 23,
Sa wade hia’ dade nisseees 98
KEY SETTLEMENT TERMS ............. 103
A. The Global Settlement .............. 103
B. The Third-Party Claimant Class Settlement | 17
C. The Trilateral Settlement ............ 123
D. The Longshore Settlement ........... 125
FUTURE CLAIMS AND VALUE PROJECTIONS
AND THEIR IMPLICATIONS FOR THE THREE
LITIGATION/SETTLEMENT SCENARIOS
BEPORE THE COURT ... 0... cece ecceees 126
COMPARISON OF GLOBAL AND TRILATERAL
UI GMOS Kine dc adewn cers 132
ADDITIONAL FAIRNESS CONSIDERATIONSI40
A. Operation of the Trust .............. 140
B. Limitations on Claims Against the Trust . 145
c. Fibreboard’s Contributions tothe Settlement
and the Insurers’ Insistence on “Total Peacd48
XII.
212a
D. Changed Circumstances ............. 152
E. SRS bind sw dae haa ecewne tes 155
THE CLASSES AND CLASS
i ee 156
A. p ARE A hn yf oar ga PERT? g* 156
B. The Class Representatives ........... 157
1. Global Health ClaimantClass
Representatives .............. 157
2. Global Third-Party Claimant Class
Representative .............. 161
3. Longshore Defendant Class
Representative .............. 163
ADEQUACY OF CLASS COUNSEL ........ 164
A Global Health Claimant Class Counsel .. 164
B. Global Third-Party Claimant Class Counsel 168
¢. Longshore Defendant Class Counsel .... 168
ETHICAL CONSiDERATIONS ............ 168
A. Alleged Conflict of Interest Between Present
and Future Claimants ............... 173
I. Time Period (i): Early 1991 Through
ART TI a a ot aN a ta 176
2. Time Period (ii): April 9, 1993
Through August 9, 1993 ....... 177
3. Time Period (iii): August 9, 1993
Through August 27, 1993 ...... 184
A a ele ee vancng Second
213a
i
4. Time Period (iv): August 27, 1993
Through October 12, 1993 ..... 190
; 5. Time Period (v): October 12, 1993
! Through December 23, 1993.... 191
6. Conflict of Interest: Concluding
| TO CU SRNAS ION Seekers. 192
|
;
| B Alleged Intraclass Conflicts .......... 194
! 1. Alleged Conflict Between Pre-1959
and Post-1959 Claimants ....... 196
2. Alleged Conflict Based on
} “Cognizability” of Injury ....... 200
; 3. Alleged Conflict Based on
| Representation by SCB Member . 204
C. This Court’s Consent ............... 209
SS Paseo eer ES. 213
XIII. GUARDIAN ADLITEM ................. 215
XIV. LONGSHORE SETTLEMENT ............. 229
| XV. ADEQUACY OF NOTICE ................ 240
q
214a
FINDINGS OF FACT
The Court makes the following preliminary
findings of fact:'
L. INTRODUCTION
1. This is a class action commenced in
connection with a settlement of contested and threatened
litigation pursuant to Fed. R. Civ. P. 23(b). The agreements
now before the Court for approval reflect a settlement among
parties who have aggressively asserted and controverted the
rights and claims that will be finally compromised and settled if
the Court enters a final judgment. As detailed below, there has
been nothing feigned or collusive about the negotiations that
brought the parties to court. The disputes among the parties are
real and, unless the settlement is approved, those disputes will
continue. The controversies between the litigants are not moot.
The disputes tendered for resolution are ripe and the parties
have properly presented the requested adjudication of rights by
this Court.
2. The principal parties to this litigation are
the following:
-- Gerald Ahearn, James Dennis, Charles
W. Jeep, James Ellison and William
"To the extent the following findings of fact include conclusions of law
or mixed findings of fact and conclusions of law, those findings and conclusions
are hereby adopted by this Court.
215a
James Mitchell, the class representatives
of the plaintiff and defendant asbestos
; } health claimant classes in this action (the
“Global Health Claimant Class”).’ .
-- Fibreboard Corporation (“Fibreboard”’),
which manufactured and distributed
asbestos-containing products from the
1920s uniil 1971. See Findings of Fact
q 24.
-- Continental Casualty Company
(“Continental”), CNA Casualty
Company of California and Columbia
Casualty Company, which issued general
. liability policies to Fibreboard. See
Findings of Fact ¥ 37.
-- Pacific Indemnity Company (“Pacific”),
which Fibreboard alleges issued it a
. general liability policy. See Findings of
Fact ¥ 37. (Continental and Pacific are
sometimes collectively referred to herein
as the “Insurers.”)
-- Owens-Illinois, Inc. (“Owens-Illinois”),
the class representative of a defendant
7 The formal definition of the Global Health Claimant Class is set forth
in this Court's Order Finally Certifying Plaintiff and Defendant Classes.
216a
class of third-party claimants (the
“Global Third-Party Claimant Class”).’
-- Bethlehem Steel Corporation
(“Bethlehem”), the class representative
of a defendant class of certain employers
and insurers (the “Longshore Defendant
Class”).*
-- Esteban Yanez Ortiz, Marion Behee,
Paul Cochran, Edee Cochran, Ida Beck,
John R. Allgood, Henry Evers and
Lester E. Taylor (the “Ortiz
Interveors”), intervenors represented by
the law firm of Baron
& Budd, who have objected to this
settlement.
-- James Flanagan and David H. Middleton
(the “Flanagan Intervenors”),
intervenors represented by the Maritime
Asbestos Legal Clinic, a Division of the
Jaques Admiralty Law Firm, who have
objected to this settlement.
3. Diversity of citizenship is present and is
uncontested. Each class member alleges, in good faith,
*The formal definition of the Global Third-Party Claimant Class is set
forth in this Court’s Order Finally Certifying Plaintiff and Defendant Classes.
“The formal definition of the Longshore Defendant Class is set forth in
this Court’s Order Finally Certifying Plaintiff and Defendant Classes.
217a
entitlement to damages in excess of $50,000, exclusive of
interest and costs. This Court has subject matter jurisdiction
over these proceedings.
4 Each member of the Global Health
Claimant Class alleges exposure to asbestos, a well-documented
human carcinogen, and therefore an increased risk of
contracting cancer. In re Joint Eastern and Southern District
Asbestos Litigation (“Manville”), 129 B.R. 710, 739-40 (E. &
S.D.N.Y. 1991), vacated, 982 F.2d 721 (2d Cir. 1992); Tr. at
544.° A number of courts, including the trial court in the
coverage litigation between Fibreboard and the Insurers, have
found that exposure to asbestos causes injury at the cellular
level.° See, e.g., Carlough v. Amchem Products, Inc., 834 F.
Supp. 1437, 1454 (E.D. Pa. 1993). Accordingly, each member
of the Global Health Claimant Class alleges injury-in-fact
sufficient to confer standing.
5. Those members of the Global Health
Claimant Class who have been exposed to asbestos, but who
have not yet developed recognizable disease or injury, seek,
inter alia, damages to compensate for fear of cancer and for
enhanced risk of developing cancer, damages tied to the need to
undergo medical monitoring to detect the early development of
asbestos-related disease, and punitive damages. The Court
takes judicial notice that it is not at all uncommon that asbestos
‘Citations to “Tr. at __” are to the daily transcript of the fairness
hearings conducted herein.
Sin making this finding, however, the Court in no way finds that such
cellular or subclinical injury is sufficient to constitute “bodily injury” within the
meaning of insurance policies.
218a
plaintiffs recover jury verdicts substantially in excess of $50,000
notwithstanding the absence of disability or medical impairment,
typically in pleural thickening cases. Each Global Health
Claimant Class member, including each so-called “exposure-
only” claimant, has a good faith basis for arguing for application
of authorities permitting recovery for fear of cancer, risk of
cancer and medical monitoring. See, ¢.g., Potter v. Firestone
Tire and Rubber Co., 863 P.2d 795, 816 (Cal. 1993); Miranda
v. Shell Oil Co., 15 Cal. Rptr. 2d 569 (Cal. Ct. App. 1993);
Barras v. Monsanto Co., 831 S.W.2d 859 (Tex.App.- -Houston
[14 Dist.] 1992, writ denied). Fibreboard’s headquarters are
located in California, Fibreboard Exh. 706, a state that
recognizes claims for medical monitoring and fear of cancer.
Accordingly, such claims could be asserted against Fibreboard
by all members of the Global Health Claimant Class.
fl. HISTORY OF ASBESTOS LITIGATION
A. General Background
6. Asbestos-related personal injury and
wrongful death litigation began in the courts of East Texas in
the late 1960s. The first modern-day asbestos-related personal
injury case in this country was brought in this Court in 1967 by
Claude Tomplait against Fibreboard and other defendants. Trial
resulted in a verdict in favor of the defendants. Tr. at 60. It is
generally accepted that the tide of asbestos-related injury
litigation flooding the nation’s courts today turned on the result
in the Borel case, an action filed in the Beaumont Division of
thisCourt in 1969. Tr. at 131. All Borel defendants, including
Fibreboard, were held liable, and on appeal the Fifth Circuit
Oe ee Ee ee eT Le ee end Se eee eee
219a
affirmed. Borel v. Fibreboard Paper Products Corporation, 493
F.2d 1076 (Sth Cir. 1973), cert. denied, 419 U.S. 869 (1974).
i} Following Borel, and through the late
1970s, plaintiffs’ counsel around the country crafted theories of
liability against the asbestos defendants they had identified, the
primary target being Johns-Manville, Inc. (“Manville”).
Plaintiffs’ counsel conducted discovery, assembled a mass of
documents bearing on liability that are now well known to every
experienced asbestos judge, and identified the various medical
conditions that could be forensically attributed to asbestos
exposure. Tr. at 128, 131-32, 937-38; Fibreboard Exh. 102 at
vii; Manville, supra, 129 B.R. at 743-45.
8. By the mid-1980s, the fundamental legal
theories and liability cases against the early defendants, including
Fibreboard, had been established, and litigation against these
companies intensified dramatically. Class Plaintiffs Exh. 1014;
Tr. at 133; Manville, supra, 129 B.R. at 745-51; Class Plaintiffs
Exh. 1014 (Transcript of Deposition of Lawrence Fitzpatrick,
Feb. 22, 1994, Georgine v. Amchem Products, Inc., Civil Action
No. 93- 215 (E.D. Pa.) (“Fitzpatrick Tr.”)) at 72-76.
9. Facing enormous liabilities and
overwhelming defense costs, many defendants ended up in
bankruptcy, including a number of companies previously
considered to be immune fromfinancial difficulty. See In re
Asbestos Products Liability Litigation, 771 F. Supp. 415, 420
(J.P.M.L. 1991). Beginning in 1982 with Unarco Industries,
Inc. and Manville, the list of corporate asbestos bankrupts now
includes such defendants as Celotex Corporation, Eagle-Picher
Industries, Inc., H.K. Porter Company, Inc., Keene Corporation,
220a
National Gypsum Company, Forty-Eight Insulations, Inc., and
Raymark Industries, Inc. Fibreboard Exh. 919, Tab 4.
10. ‘Before it entered bankruptcy, Manville,
which had supplied the largest share of asbestos-containing
products, basically controlled the defense of asbestos litigation
na- tionwide. Fitzpatrick Tr. at 74. Manville paid on an
aggregate basis approximately 30% to 33% of the funds paid in
asbestos settlements. After Manville entered bankruptcy in
1982, and stopped paying money in asbestos cases, other
asbestos defendants generally believed that they did not receive
settlement credits or set-offs reflecting Manville’s share. Tr. at
132-34, 1133-34; Fibreboard Exh. 100 at 5.
11. As asbestos-related personal injury
litigation mushroomed in the 1980s, asbestos dockets across the
country grew exponentially, and plaintiffs in many jurisdictions
began to face substantial delays in having their claims resolved.
PW pm FR ep Litigation (“Ast sd Hoc C tee B ) at
7-12 (1991) (Class Plaintiffs Exh. 1003). Transaction costs
outpaced compensation to victims. Id, at 12-14. Rand
Corporation studies in 1983 through 1985 found that only 37%
to 39% of money paid by asbestos defendants actually went to
victims, with 61% to 63% consumed by transaction costs.
Fibreboard Exhs. 100-102.
12. Asbestos litigation constitutes “an
unparalleled situation in American tort law.” In re School
Asbesivus Liti- gation, 789 F.2d 996, 1000 (3d Cir.), cert.
denied, 479 U.S. 852 (1986). Citing the Asbestos Ad Hoc
Committee Report, the Judicial Panel for Multidistrict Litigation
221a
summarized what it termed the “most objectionable aspect of
asbestos litigation”:
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,
transaction costs exceed the victims’ recovery by
nearly two to one; exhaustion of assets threatens
and distorts the process; and future claimants
may lose altogether.
in.re Asbestos Products Liability Litigation, supra, 771 F. Supp.
at 419 (citing Asbestos Ad Hoc Committee Report at 1-3).
13. By 1986, counsel, commentators and
courts began to recognize the enormous problems facing all
involved in asbestos litigation. In 1987, the Federal Judicial
Center convened a conference to discuss the asbestos litigation
crisis and the need for some type of overarching resolution. The
conference included judges with significant asbestos dockets
across the country and some leading members of the asbestos
plaintiffs’ bar. Participants addressed many of the conditions
outlined above, including the growing backlog of cases, the fact
that new cases were being filed at a much greater rate than
existing cases could be tried or settled, the fact that transaction
costs greatly outweighed the victims’ recoveries, and the
growing number of bankrupt defendants. Fitzpatrick Tr. at 72-
77. Despite the widespread recognition of these problems, the
asbestos crisis continued to worsen. By 1990, overwhelmed
asbestos courts had turned to novel mass adjudication
techniques. Fibreboard Exhs. 104, 105, 107-117, 120-124.
222a
14. In 1990, the Federal Judicial Center
convened another conference of judges, academics and counsel
to address the continuing issues related to asbestos litigation.
This took place at the Di: ley Madison House in Washington,
D.C. The 1990 Federal Judicial Center conference was a
significant event in the history of asbestos-related litigation.
Many of those involved, including counsel for Fibreboard, came
away with a clear impression that "business as usual” would not
be a judicially acceptable solution to the problem. Tr. at 211;
Fitzpatrick Tr. at 82-84.
15. In the wake of the 1990 conference,
members of the asbestos bar and the judiciary took preliminary
steps to- ward national action on the asbestos problem. A
number of federal judges organized to explore class action
treatment of the problem. Fitzpatrick Tr. at 84-86.
16. In July 1990, some leading members of
the asbestos plaintiffs’ bar filed a class action in this Court
pursuant to Fed. R. Civ. P. 23(b(1)(B), Linscomb v. Pittsburgh
Coming Corp., et al. The action was commenced on behalf of
all persons (present and future) with asbestos- related personal
injury claims. Many of the major asbestos defendants were sued
in Linscomb, including Fibreboard. Fibreboard Exh. 116.
Preliminary proceedings were conducted in this Court on
Linscomb in the summer of 1990. Steering committees were
formed. Ronald Motley and Joseph F. Rice, of the law firm
Ness, Motley, Loadholt, Richardson & Poole (“Ness Motley”)
were appointed to the steering committee, and Mr. Motley was
designated as one of the coordinating counsel for the plaintiffs.
The parties conducted settlement meetings and explored
whether an overall solution to asbestos injury litigation could be
223a
found. Fitzpatrick Tr. at 87-89; Class Plaintiffs Exh. 1002;
Fibreboard Exh. 117.
17. In September 1990, Chief Justice
Rehnquist appointed a panel, the Judicial Conference Ad Hoc
Committee on Asbestos Litigation (“Asbestos Ad Hoc
Committee”), to study asbestos litigation and make
recommendations. In November 1990, eight federal district
judges with significant asbestos experience sent a letter to the
Judicial Panel for Multicistrict Litigation (“MDL Panel”). They
urged the MDL Panel to reverse its several prior rulings
declining requested MDL transfers, and asked that the MDL
Panel consolidate all federal asbestos litigation in a single
judicial district. These judges argued that consolidation would,
among other things, “facilitate global settlements,” and allow the
transferee court to “fully explore . . . national disposition
techniques such as classes and sub-classes under Rule 23.”
Fibreboard Exh. 118; Fitzpatrick Tr. at 93-95.
18. In March 1991, the Asbestos Ad Hoc
Committee issued its report. Class Plaintiffs Exh. 1003. The
report has been described as a “ringing condemnation” of the
treatment of asbestos claims in the tort system. See Georgine
v. Amchem Products, Inc., 157 F.R.D. 246, 265 (E.D. Pa.
1994). The Asbestos Ad Hoc Committee stated:
[T]he [asbestos] situation has reached critical
dimensions and is getting worse. What has been
a frustrating problem is becoming a disaster of
major proportions to both the victims and the
producers of asbestos products, which the
224a
courts are ill-equipped to meet effectively.
Asbestos Ad Hoc Committee Report at 2.
19. The Asbestos Ad Hoc Committee also
expressed its hope that some alternative dispute resolution
mechanism for processing asbestos claims could be fashioned.
Id. at 14. It concluded, id, at 10, that:
The volume and complexity of asbestos cases
have resulted in the violation of a basic tenet of American justice
and the spirit of the Civil Justice Reform Act of 1990: speedy
and inexpensive resolution of cases.
20 On July 29, 1991, the MDL Panel issued
an order transferring all federal personal injury asbestos
litigation to Judge Weiner of the Eastern District of
Pennsylvania for coordinated or consolidated pretrial
proceedings.’ In re Asbestos Products Liability Litigation,
supra, 771 F. Supp. 415. The MDL Panel voiced its hope that
the MDL transfer might foster global settlements of the
“asbestos mess,” noting that transfer “offer[s] a great
opportunity to all participants who sincerely wish to resolve
"In the hearing before the MDL Panel, the majority of the plaintiffs’ bar
had favored the Eastern District of Texas as the transferee forum in connection
with the MDL proceedings, if there was to be a transfer of cases. Fitzpatrick Tr.
at 95. It is a matter of common knowledge that asbestos claimants from across
the country, and from outside the United States, frequently select courts in Texas
~- and this District in particular -- as the venue in which to pursue their asbestos
personal injury actions. The Court notes that substantial numbers of the most
scent ashestos personal injury filings against Fibreboard in Texas by the
Baron & Budd firm, counsel for the Ortiz Intervenors, were apparently on behalf
of residents of states other than Texas. Fibreboard Exh. 824.
225a
these asbestos matters fairly and with as little unnecessary
expense as possible.” Id. at 424. At the time of the MDL
transfer, almost 30,000 asbestos-related personal injury claims
were pending in the federal courts, with two times that number
pending in the state courts. Id. at 416, 421. Linscomb was
transferred to Judge Weiner as part of the MDL proceedings.
21. After the MDL transfer, Judge Weiner
appointed plaintiffs’ and defendants’ steering committees for the
MDL litigation, the members of which included Ronald Motley,
of Ness Motley, as one of the co-lead counsel of the Plaintiffs’
Steering Committee, Steven Kazan, of the law firm Kazan,
McClain, Edises & Simon, as a member of that committee; and
Stephen M. Snyder," counsel for Fibreboard, as a member of the
Defendants’ Steering Committee. Judge Weiner made clear that
he wanted the litigants to solve the asbestos crisis on a global
basis. Tr. at 125; Fitzpatrick Tr. at 99-100, 110-11.
22. Settlement negotiations began between
the Plaintiffs’ and Defendants’ Steering Committees in the
MDL litigation. The parties made substantial efforts at global
negotiations involving all plaintiffs and all defendants. Tr. at
221. The primary purpose of the MDL settlement talks was to
craft a national settlement that would provide an alternative
*Mr. Snyder is a partner in the San Francisco law firm Brobeck,
Phieger & Harrison. Tr. at 118. Since the early 1980's, Mr. Snyder’s
representation has focused on asbestos litigation defense and, in particular, the
defense of Fibreboard. Tr. at 118. Between 1985 and 1988, he represented the
members of the Asbestos Claims Facility in northern California, and served on
a number of national committees of that organization. Since 1988, he has been
Fibreboard’s national counsel for defense of asbestos bodily injury cases. Tr. at
120-23.
226a
resolution mechanism for asbestos claims. Judge Weiner
encouraged these global settlement negotiations. Fitzpatrick Tr.
at 110-11. These talks did not result in a global settlement,
Fitzpatrick Tr. at 114-17, but they did serve as a springboard for
other, less inclusive negotiations, including those that resulted
in a settlement between asbestos victims and defendants who
had formed the Center for Claims Resolution (“CCR”), a claims
handling facility created in late 1988 in the wake of the
dissolution of a similar organization, the Asbestos Claims
Facility. See Georgine, supra, 157 F.R.D. at 266-67.
Fibreboard had a difficult time fitting itself into the MDL-related
settlement talks because it had no cash with which to make
settlements. Tr. at 221.
23. At the time of the settlement negotiations
un- derlying this class action, asbestos litigation was probably
the most “mature” mass tort litigation in this country: Le, the
liability and medical issues pertinent to such litigation had been
the subject of thorough and repeated discovery, trial and
settlement. Georgine, supra, 157 F.R.D. at 321-22; F.
McGovern, Resolving Mature Mass Tort Litigation, 69 B.U. L.
Rev. 659 (1989). The results of this experience were known to
counsel for the plaintiff class in this action, as well as to counsel
for Fibreboard and, to some lesser extent, its insurers. Tr. at
937-38, 2162, 2720.
B. Fibreboard Background
24. As asbestos-related defendants were sued
on a regular basis, Fibreboard became known as an “all-years”
defendant because its asbestos-containing products had been
distributed from the 1920s until 1971, when it ceased producing
227a
asbestos-containing products. Tr. at 127-28. In contrast, some
defendants are generally recognized to bear liability for exposure
to asbestos that occurred only during certain periods of time. In
addition, Fibreboard was and is considered to be primarily a
“pipe and boiler” defendant, in that its products frequently were
used in high-temperature industrial applications involving
shipyards, boiler rooms, shops, refineries, and similar
applications. Most other defendants were primarily
manufacturers of asbestos-containing roofing products,
construction materials and linoleum flooring. Tr. at 128.
Fibreboard became known as a regional defendant because its
primary manufacturing facilities and distribution networks
during most of the relevant years were in California. Fibreboard
had a primary exposure to liability in West Coast and Gulf Coast
(especially Texas) cases, rather than in cases in the East. Tr. at
128, 131, 2448-49.
25. In 1983, Fibreboard suffered its first
punitive damages verdict. Tr. at 118, 400. Nonetheless,
perhaps be- cause there is no “treasure trove” of inculpatory
Fibreboard documents, Tr. at 440, Fibreboard never became a
punitive damages target defendant. Tr. at 400. With one
exception, Fibreboard ultimately never paid a punitive damages
judgment in connection with an asbestos personal injury claim.
Tr. at 399; Fitzpatrick Tr. at 130.
26. Fibreboard generally experienced greater
liability in cases of earlier exposure to asbestos than in cases of
later exposure. That was because (i) Fibreboard had a greater
share of the pipe and boiler insulation markets in the earlier
years (j,¢., before the mid-1950s) than in later years (i.¢., the late
1950s and 1960s); (ii) the bankruptcy of other defendants with
232a
Fibreboard had no insurance assets except for the proceeds of
two settlements with the American Insurance Group of
Companies ("AIG") and with Home Insurance Company,
totaling approximately $100 million, and the coverage provided
by policies issued by Continental and Pacific that was disputed
by the Insurers in then pending litigation. Tr. at 148-49. When
it left the ACF, Fibreboard did not have enough cash to pay
settlements of asbestos injury cases, Tr. at 153, and Fibreboard’s
ability to mount a defense was greatly reduced because it had no
insurance coverage for defense, it had insufficient funds to pay
for defense, and it faced a difficult time putting together a
national network of defense counsel in cooperation with other
former ACF members who were at odds with one another in the
wake of the difficult process of disbanding the ACF. Tr. at 149-
50.
35. From before the time it entered the ACF
in 1985, and to this day, Fibreboard's corporate goal was, and
has been, to manage and resolve its asbestos liabilities within its
available insurance resources. Tr. at 144.
li. FIBREBOARD INSURANCE COVERAGE
LITIGATION AND ATTENDANT RISKS
36. Fibreboard's imsurance coverage
litigation, which came to be captioned In re Asbestos Insurance
Coverage Cases, Judicial Council Coordination Proceeding No.
1072 (the "Cover'ze Case"), commenced in 1979 when
Fireman's Fund Insurance Company filed a complaint in San
Francisco County Superior Court against Fibreboard and others,
including Continental and Pacific. Fibreboard Exh. 203.
Fibreboard's other insurers later became parties to this litigation.
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233a
Fibreboard Exh. 204. In 1981, the action was coordinated with
several separate asbestos coverage cases then pending in
California. In 1983, Judge Ira A. Brown, Jr., was confirmed as
coordination trial judge. Fibreboard Exhs. 205-207. Judge
Brown ordered the parties to produce all relevant documents as
part of a massive discovery effort. Fibreboard Exhs. 208, 209,
211.
37. Fibreboard alleged that Pacific insured it
from 1956 to 1957 under a no-aggregate-limit policy, but was
unable to locate a copy of the policy. Pacific denied that the
policy had no aggregate limit. Continental issued a
comprehensive general liability policy to Fibreboard
commencing in May 1957, which Fibreboard terminated
effective March 15, 1959. The premium for this policy was less
than $10,000 per year. The policy had no aggregate limit, but
had a $1,000,000 per occurrence limit, and a $500,000 per claim
limit. Fibreboard Exh. 201.
38. The Coverage Case was tried in several
phases. The trial was one of the largest and most complex
proceedings in the history of American civil jurisprudence,
inv diving numerous insureds and insurers. Fibreboard Exh. 215
at 1340-42. Phase I involved the existence and terms of certain
missing insurance policies, including the missing Pacific policy.
Fibreboard was not involved in Phase II. Phase III involved the
basic coverage provisions of the policies, including the trigger
of coverage and scope of coverage. Phase IV involved multiple
subphases, including Continental's “number of occurrences”
issue, scope issues concerning whether the policy-holders should
be required to contribute to claims costs, and the Insurers’
contribution rights against each other. Fibreboard was not
230a
a percentage was determined for each producer
as a total of all producers.” Regarding “defense
costs, the allocation was derived by taking each
producer’s number of pending claims, divided by
the total number of pending claims for all
producers combined.”
29. The ACF was an insurance settlement.
Fibreboard settled policy disputes with certain of its insurers --
but not with Continental or Pacific -- in order to enter the ACF.
Tr. at 138. Producer members of the ACF, including
Fibreboard, received a complete defense and indemnity with
respect to claims for compensatory damages, even though they
may have had gaps in their insurance coverage.
30. When Fibreboard entered the ACF, it
anticipated that defense costs and indemnity levels would be
kept within reasonable limits, and filings of cases in which the
claimant did not appear to have any significant disease would be
minimized. Tr. at 144. During ACF operations (June 1985 to
September 1988), its members enjoyed lower defense costs
because the number of defense counsel serving ACF members
in asbestos cases fell from as many as 1,200 law firms to
approximately 65 firms. Tr. at 139; Fibreboard Exh. 102 at 31.
Within the ACF, Fibreboard paid close to 13% of all settlements
made on behalf of any member. Tr. at 140.
31. In the Western United States there was
some success from Fibreboard’s perspective in reducing filings
of claims by “non-impaired” claimants, L.¢,, people with some
exposure to asbestos who had no significant medical impairment
or disability, and indemnity values in other types of cases were
23la
kept within reasonable limits. This was accomplished by means
of an expensive, labor-intensive litigation effort involving
considerable trial activity. However, these results were not
obtained elsewhere for Fibreboard within the ACF, and the filing
of asbestos claims against Fibreboard in the Eastern United
States and in Texas increased substantially during the ACF
years. Tr. at 143-46. In the end, ACF membership overall did
not achieve the results Fibreboard desired on liability and case
control issues.
32. In fact, ACF membership drew
Fibreboard into types of cases and into jurisdictions where it
previously had not been sued and Fibreboard became a
“national” defendant sued in regions of the country and in
segments of asbestos litigation in which it had not faced liability
previously. The result was to double Fibreboard’s exposure,
even though the facts giving rise to that exposure remained
unchanged. Tr. at 136-37, 2669-70, 2679-80.
33. ‘Filings of new asbestos-related cases
against Fibreboard in 1982 through 1984 were in the range of
4,500 to 5,000 cases per year. With rumors that the ACF might
be established, and upon its advent in June 1985, filings of such
cases increased to over 8,000 in 1985. In the remaining full
years of the ACF -- 1986 and 1987 -- filings stayed at a high
level, in the range of 13,000 to 17,000 cases per year. Tr. at
136.
34. When the ACF ceased operations in
October 1988, Fibreboard no longer had any right to a defense
or payment of indemnity by Fireman's Fund because the limits of
that insurance coverage had been exhausted. Tr. at 148-49.
228a
substantial liability exposures arising out of early years, such as
Manville, Eagle-Picher and Celotex, had the greatest impact on
defendants such as Fibreboard who also had liability for early-
years exposures; (iii) Fibreboard can produce evidence that it
began to give warnings with respect to the health hazards of its
products in 1966; and (iv) cases arising out of early exposures,
such as those in World War II shipyards, tended to be more
serious. Tr. at 129-31.
27. _‘Fibreboard has employed different
strategies to defend asbestos injury cases over time. Early on,
like most defendants, Fibreboard relied on Manville to bear the
brunt of the defense of cases. Tr. at 131. When Manville
declared bankruptcy in 1982, Fibreboard had to rely totally on
a then-existing interim agreement under which one of its
insurance carriers, Fireman’s Fund Insurance Company,
provided Fibreboard with a defense of asbestos injury claims and
paid indemnity as necessary. Tr. at 131-32.
28. Fibreboard joined the Asbestos Claims
Facility (“ACF”), which began operations in 1985. The
formation of the ACF was an effort by more than 30 companies
that faced asbestos claims, and by some of their insurers, to
create a mechanism to resolve asbestos-related claims through
unified claims handling and joint representation in asbestos-
related personal injury litigation. The general operation of the
ACF (also known as the Wellington Facility, after Dean
Wellington of the Yale University Law School, who assisted in
the negotiations leading to its formation), is well known by the
Court and is described in a number of judicial opinions. See,
¢.g., Unigard Security Insurance Company, Inc. v. North River
229a
Insurance Co., 4 F.3d 1049, 1056 (2d Cir. 1993) (internal
citations omitted):
As a result of the massive liability for asbestos-
related claims, the expense of litigation between
producers and their insurers, and _ the
administrative costs of managing nationwide
litigation and claims, an agreement concerning
asbestos-related claims, known as_ the
Wellington Agreement, was signed by producers
of asbestos and their insurers on June 19, 1985.
... The Agreement established the Asbestos
Claims Facility (“the Facility”) to “administer
and arrange for the evaluation, settlement,
payment or defense of all asbestos-related claims
against Subscribing Producers and Subscribing
Insurers in accordance with the provisions of
the Agreement. .. .” Moreover, as “sole agent,
the Facility [had] exclusive authority and
discretion to administer, evaluate, settle, pay or
defend all asbestos-related claims.”
Once the Facility settled a claim, the liability
amount and the defense costs were allocated
among the producers of asbestos . . . according
to a producer-allocation formula. The producer-
allocation formula was actually two formulae,
one for indemnity (or to pay the annual claim)
and one for defense costs. “To share indemnity,
each producer’s historical average cost by state
was multiplied by that producer’s pending claims
in that state. And the product was summed and
234a
involved in Phase V. Fibreboard Exh. 223. At stake for
Fibreboard and the Insurers was the question of whether
Fibreboard would be determined to have no further insurance
coverage under the Continental and Pacific policies or, in stark
contrast, virtuaily unlimited coverage under those policies.
39. ‘In March 1985, a jury in Phase I of the
Coverage Case trial found that Pacific had issued a one-year
comprehensive general liability policy to Fibreboard's
predecessor in 1956. The jury also found, by a nine to three
vote based on a preponderance of the evidence standard of
proof, that the policy had a $500,000 per claim limit, but no
aggregate limit. Tr. at 138; Fibreboard Exh. 223.
40. The Phase III issues, including the trigger
and scope of coverage, were tried and argued to the court
between September 1985 and February 1987. In May 1987,
Judge Brown issued a tentative decision in Phase III of the
Coverage Case in favor of the policyholders. Fibreboard Exh.
219. He found that a “continuous” trigger existed, which meant
that policy coverage applied to any claim where the claimant had
been exposed to any asbestos prior to the expiration date of the
policy. He thus rejected an “exposure only" trigger, under
which a policy would respond only to claims as to which
exposure to asbestos occurred during the policy period, and
like- wise rejected a "manifestation" trigger, under which a
policy would respond only to claims as to which injury became
apparent during the policy period. The Insurers had taken
various positions on trigger of coverage in the trial court. Pacific
took the manifestation position and Continental took no
position. Fibreboard Exh. 200. Judge Brown further found that
the scope of each triggered policy extended to full responsibility
235a
for defense and indemnity on a claim within policy limits, and
did not adopt a pro rata approach, which would have limited
each insurer's responsibility to a proportion of the liability. In
addition, Judge Brown's scope decision did not obligate the
policyholder to contribute for uninsured or underinsured
periods. Fibreboard Exh. 219.
41. The Phase IV issues, including the
number of occurrences and reserved scope issues, were tried to
the Court in the Fall of 1987. Among other issues, Continental
asserted that its policy had a maximum limit of $2,000,000 for
Fibreboard's asbestos bodily injury claims because of its
$1,000,000 per occurrence limit. Continental urged that there
were only two occurrences under the policy, contending that
“occurrence” referred to the sources of Fibreboard's asbestos-
containing products, and only two Fibreboard plants had manu-
factured such products. In August 1988, Judge Brown issued
a tentative decision in Phase IV of the Coverage Case. Judge
Brown rejected Continental's contentions on the number of
“occurrences,” holding instead that each claim constituted a
separate occurrence. Judge Brown also tentatively ruled that
each triggered policy is responsible for the full costs of a claim,
with the right to seek contribution from other triggered policies.
Fibreboard Exh. 220.
42. On January 24, 1990, the trial court
rendered judgment in the Coverage Case. Fibreboard Exh. 223.
the judgment incorporated the jury's findings as to the existence
and terms of the Pacific policy. It incorporated in substance the
“continuous trigger" and “scope” rulings set forth in the Phase
III tentative decision, and the “occurrence” ruling set forth in the
Phase IV decision. Fibreboard Exhs. 222, 223. Judge Brown
236a
denied all motions for a new trial and for judgment
notwithstanding the verdict. Fibreboard Exh. 224.
43. Insurers, including Continental and
Pacific, appealed the trial court's decision in the Coverage Case,
and the appeals were consolidated. The appellate record was
extraordinarily voluminous. In November 1990, the California
Court of Appeal issued an order calling for separate briefing by
“issue groups." Appellate briefing took place between April and
November 1991. Issue Group I included the Pacific missing
policy issues. Pacific argued that the court should have
instructed the jury that the burden of proof was by a "clear and
convincing" standard rather than a “preponderance of the
evidence" standard. Issue Group II addressed the basic
coverage issues of the trigger and scope of coverage for
asbestos bodily injury claims, as well as certain issues unique to
Continental (the number of "occurrences" and the so- called
“double anchor" question, viz., whether it was necessary that
exposure and injury both occur during the policy period).
Fibreboard Exhs. 225-242, 245, 246.
44. Oral argument upon the Coverage Case
appeal was conducted in several phases during the Summer of
1993. Continental Exh. 23; Fibreboard Exhs. 243, 247. In late
July 1993, the parties to the Coverage Case appeal were
informed by the California Court of Appeal that oral argument
upon the final phase of the appeal had been scheduled by that
court for August 27, 1993, and, on that date, the final oral
argument before the Court of Appeal in fact was heard. Tr. at
329, 1400-01, 1480-81; Fibreboard Exh. 248. On that same day
an agreement in principle was announced in this Court with
Te ee a ee ee ee ee ee ee ee ee ee ee ee ee pS ee ee ee
i ta i ead
237a
respect to the settlement that is now before this Court for
consideration. Findings of Fact ¥ 179.
45. After the announcement of the global
agreement in principle on August 27, 1993, the parties to that
agreement wrote to the California Court of Appeal advising the
court of the agreement in principle and asking that the court
defer decision in the Coverage Case, at least with respect to
those issues unique to Fibreboard and the Insurers pending the
completion of the documentation necessary to consummate the
settlement contemplated by the agreement in principle.
Fibreboard Exhs. 249, 252.
46. On November 15, 1993, the California
Court of Appeal issued an opinion substantially affirming a
number of the principal aspects of the trial court's judgment in
the Coverage Case, while reversing the trial court as to one such
aspect that had been decided in Fibreboard's favor and against
the Insurers. Fibreboard Exh. 254. However, the Court of
Appeal simultaneously granted the joint motion of Fibreboard,
Continental and Pacific to sever several insurance coverage
issues unique to those parties, and to vacate submission of those
issues pending further report to that court on the progress
toward obtaining judicial approval of the settlement at bar. Tr.
at 1497-98; Fibreboard Exh. 253. Accordingly, the disputes
with respect to those severed coverage issues remain unruled
upon by the California Court of Appeal, and their outcome thus
remains uncertain even at the intermediate appellate level.
47. Requests for rehearing by the Court of
Appeal as to the issues the Court of Appeal did decide were
thereafter denied. Fibreboard Exh. 255. On January 27, 1994,
240a
Insurance, Co., 5 Cal. Rptr. 2d 356 (Cal. Ct. App. 1992), aff'd
1995 WL 389860, Cal. Rptr. 2d _ (1995), and/or
Stonewall Ins, Co. v. City of Palos Verdes Estates, 9 Cal. Rptr.
2d 663 (Cal. Ct. App. 1992), review granted, 834 P.2d 1147
(Cal. 1992). According to Justice Kaufman, although not
identical, both the Montrose and Stonewall cases involve
"trigger of coverage” issues.'* Stonewall also involves the
"scope of coverage” issue. Continental Exh. 5 at 10, ¥ 19.
52. In addition, according to Justice Kaufman
unless the California Supreme Court vacates the "grant and
hold” status of the Coverage Case and either decides to hear the
issues in the Coverage Case or dismisses review, it is likely that,
once it has decided Montrose and/or Stonewall, the Supreme
Court will remand the Coverage Case to the Court of Appeal.
In that event, the Court of Appeal will be instructed to
reconsider its Coverage Case opinion in light of the Supreme
Court's Montrose and/or Stonewall decision(s), and the Court
of Appeal will almost surely allow the parties the opportunity
for further briefing and oral argument. The resulting decision of
the Court of Appeal -- which would presumably also include the
reserved issues -- would then be subject to another petition for
review to the Supreme Court. Given the fact that Stonewall has
not been set for oral argument yet, and the fact that after
"On July 5, 1995, the California Supreme Court affirmed the appellate
court's decision in Montrose. The supreme court noted the similarity of the
trigger issue in the Coverage Case, but deemed it appropriate, given the unique
nature of asbestos litigation, that trigger of coverage questions specifically
involving asbestos claims be left for decision on an appropriate record in a case
in which they are squarely presented. See
California v. Admiral Ins. Co., 1995 WL 389860 atn. 16, Cal. Rptr.2d
___n. 16. (1995).
eS ae
24la
Montrose and Stonewall are finally decided a remand of the
Coverage Case to the Court of Appeal followed by another
petition for review to the Supreme Court is likely, Justice
Kaufman believes that the Coverage Case may not be finally
concluded for five years or more. Continental Exh. 5 at 10-11,
q 20.
53. There are five issues currently before the
California Supreme Court or the California Court of Appeal
that have a significant bearing on the ultimate liability of
Continental and Pacific to Fibreboard under their primary
policies. These issues are commonly referred to as (i) trigger of
coverage; (ii) scope of coverage; (iii) number of occurrences;
(iv) double anchor; and (v) lost policy. Two of these issues --
trigger of coverage and scope of coverage -- involve both the
Continental and Pacific policies. Two issues -- number of
occurrences and double anchor -- involve only the Continental
policy. The lost policy issue involves only the Pacific policy.
Continental Exh. 5 at 11-12, 9 21.
54. The California trial court hearing the
Coverage Case decided each of the five issues adversely to
Continental and Pacific. Based on California law and the
concerns and propensities of the California Supreme Court,
however, it was the opinion of both Justice Kaufman and
Professor Priest that as of August 27, 1993, there was a
significant risk to Fibreboard that the California Supreme Court
would render decisions on one or more of the coverage issues
that would have the effect of either eliminating or substantially
reducing further indemnity obligations by Continental and
Pacific to Fibreboard for asbestos-related personal injury claims.
238a
the Insurers’ petitions for review of the Court of Appeal's
decision were granted by the California Supreme Court on a
“grant and hold” basis, the effect of which is that the appeal is
presently held in abeyance while the California Supreme Court
considers issues in other pending appeals that may be dispositive
of issues in the Coverage Case. Tr. at 1498; Fibreboard Exhs.
256, 258, 259; Continental Exh. 5 at 10, 4 19.
48. Two expert witnesses, Justice Marcus M.
Kaufman and Professor George Priest, testified at the fairness
hearing in this action with respect to the issue of the risk --
viewed both as of August 27, 1993 and today -- that Fibreboard
would lose the Coverage Case pending in the California
appellate courts.” No objector proffered any witness, testimony
or evidence to contradict or impeach in any way the conclusions
provided by Justice Kaufman and Professor Priest.
49. Justice Kaufman’ provided expert
witness testimony on the uncertainty -- as of both August 27,
1993 and the present --as to how the appellate courts will
*The Court finds that the testimony of all of the witnesses offered in
support of this settlement -- including that of Justice Kaufman and Professor
Priest -- was credible.
‘Justice Kaufman was in private practice from 1958 until 1970,
specializing in civil litigation. He then served for seventeen years, from January
1970 until March 1987, as an Associate Justice of the California Court of
Appeal, Fourth Appellate District, Second Division. From March 1987 until
January 1990, he served as Associate Justice of the California Supreme Court
by appointment of Governor George Deukmejian. Presently, he is of counsel to
the law firm of Buchalter, Nemer, Fields & Younger. His practice consists
principally of appellate litigation, often as a consulting expert, with special
emphasis on insurance matters. Continental Exh. 5 at 1-2, { 2.
239a
resolve several legal questions in the Coverage Case that are
either presently pending before the California Supreme Court or
that were reserved for decision by the California Court of
Appeal. In particular, he focused on the likelihood that the
California Supreme Court (or the Court of Appeal on the
reserved issues) will or will not afford the Insurers relief on one
or more of the coverage issues raised, on the likely timing of
potential rulings in the Coverage Case, on the likely effect
resolution of other cases now pending before the California
Supreme Court will have on the Coverage Case, and on the
California judicial process in general. Continental Exh. 5 at 2-3,
q3.
50. Professor Priest'’ provided expert
testimony on the likelihood, as of both August 27, 1993 and the
present, that the California appellate courts would provide the
Insurers relief on one or more of the coverage issues raised. The
Court finds that both Justice Kaufman and Professor Priest are
highly qualified experts in their fields, and finds their conclusions
and reasoning to be persuasive.
Sl. According to Justice Kaufman, it is likely
that the Supreme Court decided to “hold” the Coverage Case
pending the outcome in Montrose Chemical Corp. v. Admiral
"Professor Priest is currently a Professor of Law at Yale University.
Continental Exh. 6. The focus of his teaching and writing has been the study of
the tort system, and, in particular, trends in tort and insurance law over the last
50 or 60 years, including recent developments. Tr. at 767. He has testified as
an expert in both tort and insurance matters, including expert testimony about
California insurance matters. Tr. at 767-68. Among his other duties at Yale,
Professor Priest teaches a class on insurance, including an analysis of
comprehensive general liability insurance policies and the California Supreme
Court's approach to insurance matters. Tr. at 769-70.
242a
It was also their opinion that the same risk exists today.
Continental Ex. 5 at 12-46, $j 22-86; Tr. at 771-93.
55. Justice Kaufman's conclusions were based
upon his analysis of (i) the policy language; (ii) the California
Supreme Court ‘'s current approach to the resolution of
insurance coverage issues in particular and litigation in general;
(iii) distinctions between the application of contract law
pursuant to which insurance polices are to be interpreted and
tort law under which an asbestos manufacturer's liability is
determined; (iv) recent insurance cases either pending before or
decided by the California Supreme Court or decided by other
courts; and (v) recent California Supreme Court decisions in
non-insurance cases. Continental Exh. 5.
56. Professor Priest focused on the trend of
the law in both California and elsewhere against what he termed
- ‘se liability." This 1 iecheadion tot ing |
policies issues more narrowly in order to make insurance
coverage more predictable and certain and therefore more
available to consumers at reasonable prices. Tr. at 772-91.
57. The Court finds that the risk attending the
outcome of the Coverage Case was a matter of reasonable and
substantial concern for counsel for all of the parties to the
settlement at bar to have had, and to continue to have, and a
legitimate factor and driving force in the negotiations that
resulted in that settlement. Tr. at 792-93, 1056-59.
IV. FIBREBOARD'S RESPONSES TO ASBESTOS
LITIGATION
243a
Program
58. In August 1988, Fibreboard informed
Continental that the ACF was dissolving, and contended that
Continental was obliged to provide a defense in the asbestos
injury cases being prosecuted against Fibreboard. Fibreboard
Exhs. 400, 401. The ACF stopped operations and ceased
providing a defense to its members in September 1988.
Fibreboard had insurance proceeds of approximately $100
million available from settlements with AIG and with Home
Insurance Company. Fibreboard’s only other remaining
insurance resources were the disputed coverages under the
Pacific and Continental policies. Tr. at 148-49.
59. Upon dissolution of the ACF, Fibreboard
was in a highly unusual situation compared to other asbestos
defendants. It was a small company, valued by the market -- in
light of its potential asbestos liabilities -- at $10 to $15 million.
Tr. at 911-13; Fibreboard Exhs. 700, 701. It did not have
enough cash to pay all or any substantial part of the asbestos
injury claims asserted against it, but it had potentially very
valuable insurance assets in the form of the disputed Continental
and Pacific policies. Tr. at 169-70.
60. Faced with this situation, in September
1988 Fibreboard embarked upon a novel method of settling
asbestos cases called the "Structured Settlement Program, " or
"SSP." Under the SSP, Fibreboard agreed to make payments on
a deferred basis, that is, payment would be made when the
insurance coverage dispute with Continental and Pacific was
resolved. Fibreboard approached members of the asbestos
244a
plaintiffs’ bar, revealed the facts about its corporate worth and
its insurance situation, and asked for what in a sense was credit,
or a “bridge” loan, to keep the company viable until the
Coverage Case was finally resolved. As originally conceived,
the SSP called for no cash payable at the time a settlement
agreement was reached. Tr. at 170-71, 958.
61. | However, the members of the plaintiffs’
bar refused to accept the SSP as originally offered, insisting that
they receive both cash and assurances that Fibreboard would
not engage in asset-hiding tactics or other so-called "scorched-
earth" ligation tactics. Tr. at 171-72. The attorneys whom
other members of the asbestos plaintiffs’ bar consulted on SSP-
related .natters were principally Steven Kazan and Harry
Wartnick. Messrs. Kazan and Wartnick negotiated a revised
program with Fibreboard by which 40% cash was payable for
what came to be called "pre-1959" exposure cases, Le., those
cases in which the claimant was first exposed to asbestos before
the end of the Continental policy period (March 15, 1959), and
thus for which Fibreboard alleged it had coverage under the
Continental and/or Pacific policies.» The deferred payments
were due September 1, 1993, which deadline could be extended,
if the Coverage Case was not by then resolved to September 1,
1996. The SSP contracts provided that Fibreboard would not
make any excessive dividend distributions, or undertake
corporate reorganizations that could siphon off corporate assets
beyond the reach of asbestos claimants. Fibreboard Exh. 901;
Tr. at 169-73.
"Conversely, those cases or claims arising out of first exposure to
asbestos after March 15, 1959, are commonly known as "post-1959" cases or
claims.
245a
62. Fibreboard's strategy was simple. It
asked that claimants defer collection of agreed-upon settlement
amounts until the Coverage Case was resolved. In return, it
undertook to conserve corporate assets as the Coverage Case
made its way through the appellate process. If Fibreboard won
the Coverage Case, those plaintiffs who accepted SSP
settlements would be paid from insurance proceeds. If
Fibreboard lost the Coverage Case, all of the company's assets
would be turned over to the plaintiffs. Tr. at 170-74.
63. The revised SSP was offered on a
standard basis nationwide, and was accepted generally by
plaintiffs’ counsel. However, plaintiffs demanded increased
settlement values reflecting the fact that the SSP vehicle
presented a risk that they would never collect the deferred
portion of the payment if Fibreboard lost the Coverage Case.
Tr. at 176-77.
64. Fibreboard's strategy of deferring
payment of settlements until resolution of its insurance disputes,
and committing to keep corporate assets intact and available to
claimants were the Coverage Case to be lost, differed from that
taken by other asbestos defendants. Manville, which had the
largest share of liability of any defendant (30% to 33%), entered
bankruptcy while still an otherwise financially healthy company.
Other asbestos defendants, such as Raymark and Celotex, spent
considerable corporate resources defending cases as their
corporate resources (including insurance) dwindled. These
defendants adopted so-called “matrix” settlement systems,
offering fixed, low-value settlement amounts for specific
diseases, then reorganizing their corporate structures in such a
way that remaining assets would not be available to claimants,
246a
and then entering bankruptcy. These "scorched-earth" litigation
tactics generated substantial trial activity. Fitzpatrick Tr. at 79-
81; Tr. at 151-54; Fibreboard Exh. 101 at 12, 48.
B. The _Fibreboard-Continental “Interim
Agreement"
65. In December 1988, Fibreboard and
Continental entered into what became known as the "Interim
Agreement." Fibreboard Exh. 900. The Interim Agreement
included the following basic provisions:
-- Fibreboard released Continental from
claims for bad faith damages that were
scheduled to be tried in the Coverage Case. --
Continental agreed to fund the 40% cash
component of the SSP settlements, after
Fibreboard first exhausted the monies it had
available from the AIG and Home Insurance
Company settlements.
-- If Fibreboard prevailed in the Coverage
Case, Continental would repay or credit the
AIG and Home Insurance Company monies
Fibreboard had spent, in order that the credit
amounts would be available to pay uninsured
cases i.¢., post-1959 cases. By the same token,
if Fibreboard lost the Coverage Case, Fibreboard
would reimburse Continental for monies
Continental had paid for Fibreboard's defense
and indemnity under the Interim Agreement.
247a
-- Continental agreed to fund Fibreboard's
defense up to annual limits, or "caps," of $25
million to $29 miilion per year.
-- Continental and Fibreboard agreed to
cooperate in the joint investigation, evaluation,
management, defense, and disposition of pre-
1959 claims.
-- The Interim Agreement was to expire
upon the earlier of the end of 1992, or finality of
the appeal of the Coverage Case. Tr. at 174-75;
Fibreboard Exh. 900.
66. The SSP did not solve Fibreboard's
settlement problems. As other defendants were taken to trial,
plaintiffs also often would take Fibreboard to trial rather than
attempting to resolve credit or set-off problems created by the
SSP. Tr. at 180-82. The SSP was not adequate to dispose of
large groups of cases that were consolidated for trial. the result
was that Fibreboard became a defendant in trials of large
consolidated cases, including the Cimino case in this Court, the
Denver Turley case in West Virginia, the Baltimore consolidated
cases, and the Brooklyn Navy Shipyard cases. These
circumstances generated substantial defense expenditures by
Fibreboard. Tr. at 180-82; Fibreboard Exhs. 104, 105, 107-
117, 120-124.
67. Fibreboard’s efforts to adjust to the post-
ACF litigation setting were very costly. Fibreboard's defense
costs from September 1988 through 1989 were $50 million,
almost twice the total face value of settlements negotiated
during that period. In 1990, Fibreboard's defense costs were
248a
$52 million, as compared to $45 million of nominal value in
negotiated settlements. Fibreboard Exh. 919, Tab 3; Tr. 230-
31, 432-33.
68. By June 1990, the annual defense ‘cap"
for all of 1990 under the Interim Agreement had been reached,
and Continental therefore declined to pay for defense costs
incurred thereafter in 1990. Fibreboard Exhs. 402, 405; Tr. at
181-82.
9 Fibreboard-Pacific Negotiations
and the Fibreboard-Pacific Agreements
69. In the course of negotiations to have the
defense caps lifted, Fibreboard proposed in late 1990 to Conti-
nental and Pacific that the parties negotiate complete set-
tlements of the policies. Continental declined the proposal.
Pacific and Fibreboard pursued such negotiations. Tr. at 184-
85.
70. Fibreboard was interested in pursuing
separate negotiations with Pacific because Fibreboard had no
coverage for post-1959 claims. The Coverage Case judgment
required each policy to respond to a claim as to which first
exposure to asbestos occurred before the expiration date of the
policy. Because the Continental policy followed the Pacific
policy, under the judgment any claim covered by the Pacific
policy was also covered by the Continental policy. Fibreboard
Exh. 223; Tr. at 184-87.
71. Beginning in 1990 and continuing into
1992, separate negotiations between Fibreboard and Pacific
249a
produced two separate agreements. On March 1, 1991, Pacific
and Fibreboard entered into a written settlement entitled
"Settlement Agreement.” Fibreboard Exh. 902 (referred to as
the "Pacific I Agreement"). The Pacific | Agreement provided
that the parties would apply jointly to the California Court of
Appeal to seek reversal of that part of the Coverage Case
judgment that pertained to the Phase I jury verdict against
Pacific (determining the existence and terms of the Pacific
policy). The agreement provided that the settlement would
become effective on the date the Court of Appeal’s order
reversing the judgment with respect to the Phase I verdict
became final. The effect of such a reversal was intended to be
the elimination of any further liability of Pacific under its policy.
The Pacific I Agreement provided for payments by Pacific for
Fibreboard's benefit totalling $142 million, of which $107
million was payable to a trust, for use exclusively to pay post-
1959 asbestos injury claims, or, if not so needed, for asbestos
property damage claims. Tr. at 186-88.
72. | OnMarch 5, 1991, a different division of
the Court of Appeal from that in which the Coverage Case was
pending issued an opinion in Neary v. Regents of the University
of California, 278 Cal. Rptr. 773 (1991), rev'd, 834 P.2d 119
(Cal. 1992). The Court in Neary refused to reverse a trial court
judgment on stipulation of the parties, where reversal was a
condition to settlement. Tr. at 188; Fibreboard Exh. 903.
73. On April 19, 1991, Fibreboard and
Pacific filed a motion for stipulated reversal of the judgment.
The Court of Appeal denied the motion on October 3, 1991.
Fibreboard Exh. 904. Thereafter, the time limit for achieving
250a
the stipulated reversal expired and the Pacitic | Agreement did
not become effective. Tr. at 188-91.
74. On March 27, 1992, Pacific and
Fibreboard entered into a second agreement. Fibreboard Exh.
905 (referred to as the "Pacific II Agreement"). Under the
Pacific Il Agreement, Pacific paid Fibreboard $9 million in the
form of a loan, together with $1 million under a separate
agreement providing for a rescission of the Pacific policy.
Pacific also agreed to provide interim funding for defense and
indemnity in excess of that provided by Continental, not to
exceed $20 million. In addition, Pacific agreed to pay further
sums to Fibreboard at the conclusion of the Coverage Case, but
only if Fibreboard prevailed on the Phase III issues of trigger
and scope. If so, and depending on the decision as to Phase I
issues (the existence and terms of the Pacific policy), Pacific
agreed to pay $105 million (if Fibreboard won on Phase I) or
$80 million (if Fibreboard did not win). In addition, if
Fibreboard obtained a "Final 5.2 Order,""* Pacific agreed to pay
an additional $225 million (if Fibreboard won Phase I), or $140
million (if Fibreboard did not win). Thus, the Pacific Il
Agreement called for a maximum payment to Fibreboard of
$360 million, of which $225 million depended on Fibreboard
obtaining a "Final 5.2 Order." As was the case with Pacific I,
these payments, other than interim funds, were to be paid into
trust to pay post-1959 asbestos injury claims, with any surplus
‘4A "Final 5.2 Order" (so-called on account of the paragraph number
in the agreement that defined the term) was a final order determining that
Continental would have no nghts against Pacific for any asbestos-related defense
or indemnity costs that Continental had, before the date of the Pacific II
Agreement, neither agreed to pay (issuing a policy without more was not such
an agreement) nor actually paid.
Pe ae ee ESE ep, Se ee eae ee eee ll ain ag ee oe Pra ee oe
eal i
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payable for asbestos property damage claims. Fibreboard Exh.
905. The Pacific II Agreement called for, and the parties
executed, a rescission of all Pacific policies that might cover
Fibreboard's asbestos claims. Fibreboard Exh. 906; Tr. at 188-
91.
D. The Fibreboard Assignment Settlement
P | Related Litigati
75. In early 1991, Fibreboard believed it
faced extreme circumstances that caused it to initiate a new set-
tlement program. Tr. at 182. Confronted with the inability to
settle large groups of cases through the SSP, Fibreboard faced
major consolidated trials in Texas, Mississippi and Baltimore.
Together with the exhaustion of defense monies under the
Interim Agreement "caps," this led Fibreboard to initiate the
assignment settlement program. Tr. at 182. Unlike the SSP, the
terms of each assignment settlement were separately negotiated,
and were not identical. Their basic structures were all very
similar, however. In settlement of pre-1959 exposure cases,
Fibreboard paid the claimants no cash at the time the settlement
agreement was made, but rather granted an assignment of rights
to proceeds under the Continental policy, together with any bad
faith claims for Continental's failure to pay the assigned amount.
If Fibreboard lost the Coverage Case, it was responsible to pay
the entire settlement amounts. In post-1959 cases, claimants
were given an SSP promise to pay. Tr. at 191-93; Continental
Exh. 14. Plaintiffs who entered into assignment settlements
demanded that Fibreboard obtain a judicial confirmation of
Fibreboard's right to make the assignments. Tr. at 196.
252a
76. Assignment settlements typically covered
a law firm's entire caseload, but with provisions that addressed
the possibility that certain claimants might reject the negotiated
settlement. As it had done in the SSP settlements, under the
assignment settlement program Fibreboard agreed to preserve
its net worth and corporate resources, so that if it did lose the
Coverage Case it could be liquidated for the benefit of asbestos
claimants. Tr. at 193, 212-13; Continental Exh. 14.
77. Under the assignment settlement
program, as was the case with the SSP before, nominal
settlement values tended to increase again because, among other
reasons (i) plaintiffs had to accept the increased risk that they
would never be paid if Fibreboard lost the Coverage Case (they
were receiving no cash, whereas under the SSP they had
received 40% in cash); (ii) the assignments were of questionable
validity under California law; and (iii) Continental now took the
position that the assignment settlement program vitiated
insurance coverage even if Fibreboard were to win the Coverage
Case. Tr. at 195-96. The average settlement amount under the
SSP held steady at roughly $5,400 per case; on the other hand,
the assignment settlement average overall more than doubled,
rising to over $11,400 per case. Tr. at 195-201; Fibreboard
Exh. 919, Tabs 18-21. The weight of the assignment settlement
program served to put pressure on Continental to engage in
global settlement negotiations. Tr. at 608-09, 1082-84, 1177-
78, 1325-28.
78. Continental strongly objected to the
assignment settlements and office-wide settlements on several
grounds, including that Fibreboard had no right to enter into
them, that they breached the Interim Agreement provisions
oh ol il a a rt al lS
253a
calling for joint management of the cases and claim-by-claim
evaluation of cases, and that they violated policy provisions
prohibiting assignments of policy rights and settlements without
Continental's consent. Continental also objected to the
assignment settlements on the grounds that the settlement
amounts were inflated and that pre-1959 (insured) claims bore
a disproportionately high share of gross settlement amounts in
each office-wide settlement agreement. Tr. at 195-96.
79. Abroad, bitter and costly conflict ensued
be- tween Fibreboard and Continental over the assignment
program, and related issues. This conflict persisted through
1991 and 1992, and led to an agreement entered into on April
9, 1993 between Fibreboard and Continental, which has become
known as the "April 9 Agreement." Fibreboard Exh. 908; Tr. at
1340-47.
80. In the conflict over the assignment
settlement program, Continental took the position that the
December 1988 "Interim Agreement" had redefined its policy
obligations for the interim period, and that, if it complied with
the Interim Agreement, it had provided all the defense that it
was obligated to provide. Fibreboard took the position that an
obligation to provide a full defense under the insurance policy
still existed, that if payments under the Interim Agreement for
defense were not adequate then Continental had not complied
with its policy defense obligations leaving Fibreboard free to
enter into settlements without Continental's consent, and that
Fibreboard could do so by way of assignment of proceeds under
the Continental policy. Tr. at 202-03.
254a
81. Continental's objections began with the
first assignment settlement, in the Cimino litigation.
Continental Exh. 14; Fibreboard Exhs. 403, 500. Continental
consistently objected to use of the assignment vehicle in all
settlements, including the Brooklyn Navy Shipyard cases
brought by the Levy, Phillips law firm (Fibreboard Exh. 407),
the Weitz & Luxenberg cases (Fibreboard Exh. 409), and the
Kazan cases (Fibreboard Exhs. 410, 411), among several others.
Fibreboard Exhs. 406, 408, 416, 430, 431.
82. Continental asserted and continues to
assert that the assignment settlement program not only violated
various provisions of the Interim Agreement, but also the
insurance policy itself, including provisions prohibiting
assignment of interests under the policy, prohibiting settlements
without Continental's consent, prohibiting action against
Continental other than for declaratory relief, mandating
cooperation, and prohibiting assumption of obligations.
Fibreboard Exh. 412; Tr. at 202-04. Continental further
asserted, and continues to assert, that Fibreboard's use of
assignments had vitiated its coverage altogether, quite apart
from the outcome of the Coverage Case. Tr. at 1515-17.
Fibreboard adamantly rejected, and continues to disagree with,
Continental's position in this regard, and asserts that Continental
has no right to make any such claims. Tr. at 1545-
46.
83. Several lawsuits were brought by
Fibreboard against Continental to test whether Fibreboard
legally could enter into settlements using the assignment
mechanism. The first action, known as Andrus v. Fibreboard
Corp., was filed by Fibreboard on April 1, 1991 in state court in
255a
Alameda County, California, in connection with a proposed
settlement of asbestos cases brought by Mr. Kazan's firm.
Fibreboard Exhs. 303, 304.
84. On June 28, 1991, Continental filed an
action in federal court in California, challenging the pending
assignment settlement of the Cimino cases. Fibreboard Exhs.
305, 308. Eventually, that action was dismissed in favor of a
third-party action filed in July 1991 by Fibreboard against
Continental in Cimino seeking approval of the Cimino
assignment settlement. Fibreboard Exhs. 306, 312, 313; Tr. at
206.
85. Fibreboard brought similar actions in
federal court in New York to validate assignment settlements
with claimants represented by the Levy, Phillips firm, and those
represented by Weitz & Luxenberg. Fibreboard Exhs. 307, 311.
Those matters were settled directly by Continental with
claimants, immediately before trial or hearing, without a ju-
dicial determination as to the validity of the assignment vehicle,
and, accordingly, Fibreboard's efforts to obtain an early ruling
in its favor on the assignment issue did not succeed. Fibreboard
Exhs. 310, 314; Tr. at 205-06.
86. Mr. Kazan did not settle the cases
involved in the Andrus action directly with Continental.
Fibreboard Exhs. 421, 422. On June 1, 1992, Judge Kawaichi
of the Superior Court in Alameda County granted summary
adjudication in Andrus in Fibreboard's favor, ruling that
Fibreboard had the right to make reasonable settlements by way
of assignment. Fibreboard Exh. 315. Judge Kawaichi
reaffirmed that order on July 6, 1992, on Continental's motion
256a
for reconsideration. Fibreboard Exh. 317. On September 2,
1992, the California Court of Appeal summarily rejected
Continental's petition for writ of mandate, Fibreboard Exhs.
318, 321, and judgment in Andrus was entered in Fibreboard’s
favor in September 1992. Fibreboard Exh. 322; Tr. at 206-08.
87. On July 8, 1992, shortly after Judge
Kawaichi reaffirmed the Andms summary adjudication,
Continental wrote Fibreboard stating that, notwithstanding the
defense cap provisions in the Interim Agreement, Continental
would provide a defense in accordance with applicable law.
Fibreboard Exh. 435. Continental then reiterated its position
that Fibreboard had no basis to make assignment settlements,
given the position taken in the July 8 letter. Fibreboard Exh.
436. Fibreboard contended that Continental's offer to provide a
full defense came too late. This new dispute provoked a series
of correspondence, with each side arguing its contention, and
with Fibreboard eventually taking the position in January 1993
that Continental could not remedy the situation created by its
past failures to defend as long as Continental continued to
reserve its coverage position. Fibreboard Exhs. 439-441, 446,
450, 452, 454, 468; Tr. at 234- 36.
88. The controversies between Continental
and Fibreboard involved many areas in addition to Continental's
objections to Fibreboard settling claims by way of assignments.
Fibreboard contended that Continental refused to pay defense-
related costs, such as those for a computerized case
management system, a case processing center, and costs of
negotiating assignment settlements. Fibreboard Exhs. 419, 434.
Continental argued that Fibreboard's method for allocating
amounts to individual cases based on duration of exposure, date
257a
of first exposure, and disease (known as the “point yan s
improperly weighted the settlement amounts in group ¢
inventory settlements to pre-1959 cases. Fibreboard Exh. 410.
Continental desired to attend settlement negotiations between
Fibreboard’s counsel and claimants’ counsel; Fibreboard insisted
on preconditions to such attendance. Fibreboard Exh. 413.
When Continental developed its own settlement program,
containing a 10% cash component, Fibreboard objected to that,
Fibreboard Exhs. 437, 438, 442, 443, and to Continental's
efforts to make settlement offers directly to claimants’ counsel
rather than through Fibreboard's counsel. Fibreboard Exhs. 415,
417. After Continental negotiated privately with counsel for the
Cimino claimants, Fibreboard took the position that Continental
had assumed full responsibility for all of those cases. Fibreboard
Exh. 432. Continental's efforts to transform the settlement
process into one in which it fully participated, by way of three-
party agreements (that is, including Fibreboard, plaintiffs and
Continental), led to contentions by Fibreboard that there was no
agreed-upon three-party settlement structure, and Continental's
assertion that there was. Fibreboard Exhs. 452, 457, 459, 460.
Vv. HISTORY OF GLOBAL SETTLEMENT
89. Anumber of factors prompted Fibreboard
to begin to explore the possibility of a global resolution of all of
its asbestos injury liabilities in late 1990 and early 1991.
Fibreboard was locked in a significant dispute with Continental
and did not have enough money to defend itself. As a result, it
entered into the Pacific | Agreement -- and, later, the Pacific II
258a
Agreement -- to obtain funds. Tr. at 208-09. It then
commenced the assignment settlement program in order to try
to bring the underlying litigation closer to Continental, believing
that it was important that Continental feel as threatened as
Fibreboard did before Fibreboard would be able to receive some
protection from Continental. Fibreboard wanted, in short, to get
Continental interested in Fibreboard's entire asbestos problem.
Fibreboard believed that in order to bring Continental to the
bargaining table with respect to resolving all of Fibreboard's
asbestos injury liabilities (pre-1959 and post-1959 claims), it
was necessary to demonstrate progress toward assignment-
based global settlement negotiations with the plaintiffs. Tr. at
209,633.
90. Other developments contributed to
Fibreboard’s interest in seeking a global resolution. Fibreboard
was particularly motivated by the Linscomb action, filed in this
Court in July of 1990 as a Rule 23(b)(1)(B) present and future
claims class action, which had been widely discussed as a
vehicle for "limited fund" treatment of certain defendants,
including Fibreboard. Tr. at 210; Fitzpatrick Tr. at 86-87; Class
Plaintiffs Exh. 1002; Fibreboard Exh. 117. At the 1990 Federal
Judicial Center meeting at the Dolley Madison House in
Washington, D.C., the message taken away by Fibreboard was
that litigants should devise a solution to the asbestos problem,
or the courts would impose a solution the litigants might not
like. Tr. at 211; Fitzpatrick Tr. at 83-84. In September 1990,
the Asbestos Ad Hoc Committee had been commissioned to
report on the asbestos problem in the courts. In November
1990, eight federal judges had written a letter to the MDL Panel
requesting transfer under 28 U.S.C. 91407 of federal asbestos
cases to Judge Weiner. Fibreboard Exh. 118. All of these
259a
developments stimulated Fibreboard's interest in global
settlement discussions. Tr. at 208-11.
91. Fibreboard initially approached Mr.
Motley of the Ness Motley firm to discuss a global settlement
because he had been outspoken about the need for alternative
approaches at the Dolley Madison House meeting, because
asbestos lawyers generally advised that Ness Motley
involvement would be necessary for any global settlement, and
because Ness Motley was involved in virtually all major trials
against Fibreboard. Tr. at 211-12. Mr. Motley -- together with
his partner at Ness Motley, Joseph F. Rice -- eventually agreed
to consider a global settlement on an assignment basis. As
proposed by Fibreboard, such a settlement would have the
following elemental structure: if Fibreboard confirmed its
coverage through a victory in the Coverage Case, plaintiffs
would look only to Fibreboard's insurance assets for
compensation, and not to Fibreboard's other (non-insurance)
assets; if Fibreboard lost its coverage as the result of a loss in
the Coverage Case, in contrast, plaintiffs could “have the
company.” Tr. at 212-13.
92. Fibreboard also approached Messrs.
Kazan and Wartnick in late 1990 or in early 1991 suggesting
that they consider a global settlement. Kazan and Wartnick
were logical choices because they had the most information
about Fibreboard's West Coast activity, and other asbestos
plaintiffs’ lawyers looked to them for guidance in the Fibreboard
litigation. Fibreboard felt that negotiations would have
credibility only if they, as experts on Fibreboard, were in-
volved. Tr. at 213-14. Messrs. Kazan and Wartnick contacted
Mr. Motley in the belief that Ness Motley would have to be
260a
involved if any global settlement was to succeed. Tr. at 644-
45.
93. Having decided to go forward with
negotiations with Fibreboard with respect to an assignment-
based global settlement of present and future claims, the Ness
Motley lawyers and Messrs. Kazan and Wartnick ("Plaintiffs'
Counsel")'* took several steps to increase their negotiating
effectiveness. They retained the law firm of Caplin & Drysdale,
Chartered, to represent them and assist them in handling certain
highly complex tax, insurance, class action and commercial
litigation issues that might arise in the negotiations and that they
believed might be beyond their areas of personal expertise. Tr.
at 646, 1555-56. The primary lawyers at Caplin & Drysdale
involved in this representation were Elihu Inselbuch and Peter
Van N. Lockwood. Either Mr. Inselbuch or Mr. Lockwood or
both were present at most of the discussions and negotiations
described herein. Fibreboard Exhs. 505, 511; Tr. at 1382, 1450,
1466, 1550-51, 1555. Although Caplin & Drysdale at no time
represented individual asbestos plaintiffs, that firm had had
extensive experience in the asbestos field, including work in
connection with the Manville bankruptcy and trust. Tr. at 1556.
This Court finds that it was prudent and reasonable for Plaintiffs’
Counsel to have retained them.
94. At the request of Plaintiffs’ Counsel,
Fibreboard supplied them with information about its past claims
experiences, historical settlement averages, and financial
'S Another Ness Motley partner, Joseph B. Cox, Jr., became involved
in these negotiations in May 1992. Tr. at 1074-75. From that point on, the term
“Plaintiffs’ Counsel” as used herein refers to Messrs. Rice, Cox, Kazan and
Wartnick.
26la
information, on a confidential basis. Tr. at 215-16, 648;
Fibreboard Exhs. 501-15.
95. In _ negotiating a potential global
settlement, Plaintiffs’ Counsel also drew upon a substantial body
of knowledge about Fibreboard that had been collected by them
and by other plaintiffs’ counsel. During the many years or
asbestos-related litigation involving Fibreboard, various
plaintiffs’ counsei had conducted massive discovery of Fibre-
board, including document discovery and depositions of
Fibreboard's corporate officers and knowledgeable employees.
These counsel had exhaustively examined the evidence bearing
upon Fibreboard's involvement with asbestos and its knowledge
of the hazards of asbestos, including sales records and other
information. Tr. at 937-38. This Court finds that Plaintiffs’
Counsel's extensive knowledge of Fibreboard and its operations
was more than sufficient to permit them to negotiate effectively.
96. In 1991, Plaintiffs’ Counsel retained
James Sinclair, an investment banker, to provide an estimated
value of Fibreboard absent its asbestos-related liabilities. Tr. at
648. Mr. Sinclair conducted an analysis and estimated such
value of Fibreboard to be between $230 million and $240
million. Ortiz Exh. 1.
97. Plaintiffs’ Counsel also retained Dr.
William Nicholson, a prominent and _ distinguished
epidemiologist at Mount Sinai Hospital in New York, to provide
them with a projection of the number of future asbestos-related
claims against Fibreboard. Tr. at 216, 648, 836-39, 849. Dr.
Nicholson is the author (together with Drs. Selikoff and Perkel)
of a 1982 study entitled "Occupational Exposure to Asbestos:
262a
Population at Risk and Projected Mortality, 1980- 2030," which
estimated the population that had been exposed to asbestos (of
all manufacturers) in the past, and the number of resulting
cancer cases from 1980 onward. Tr. at 839-49; Class Plaintiffs
Exh. 1011. Dr. Nicholson's work in the field of future asbestos
claims projections has been among the most accurate work done
to date. Tr. at 648-49.
98. At the request of Plaintiffs’ Counsel, Dr.
Nicholson was provided with data from Fibreboard concerning
number of claims against Fibreboard per year by industry; time
of claimant's first employment; duration of claimant's em-
ployment; age of claimant; and type of claimant's disease. To
the extent that gaps were found to exist in this database, Dr.
Nicholson sought to fill those gaps with information gathered in
connection with the Manville proceedings. Tr. at 216, 850- 51.
Using this data, together with the results of this 1982 study, Dr.
Nicholson made an estimate of the number of future claims
against Fibreboard. The estimate, taking into account the
uncertainty acknowledged by Dr. Nicholson, provided a range
of just over 120,000 claims to just under 190,000 claims for the
period beginning in September 1993 and continuing through
2029. Tr. at 851-58; Class Plaintiffs Exhs. 1010, 1012, 1018.
99. _ Dr. Nicholson's work was done in 1991.
However, he reexamined his work during 1993 when
projections by others were published in connection with the
Manville trust litigation, and he reaffirmed the validity of his
analyses and conclusions in August 1993. Tr. at 861-65. As
Dr. Nicholson explained, mesothelioma projections among those
exposed to Fibreboard asbestos logically peaked earlier in time
and fell off faster than projections for persons exposed to
263a
Manville products because of the different asbestos exposure
patterns created by the different products of the two entities.
Exposure to Fibreboard products was more common in
shipyards during World War II, Tr. at 861-63, whereas Manville
products were more broadly used over a wider period of time.
It is thus inappropriate to compare Manville claims projections
with Fibreboard claims projections. Tr. at 863.
100. Based on Dr. Nicholson's methodology,
the his- torical accuracy of his work in the field of future
asbestos claims projections, and his exemplary reputation in his
field, the Court finds that it was prudent for Plaintiffs’ Counsel
to have retained Dr. Nicholson, and reasonable for them to have
relied on his projections in their subsequent global settlement
negotiations.
101. In 1990 and 1991, some of Plaintiffs’
Counsel (together with other lawyers acting for asbestos
claimants) had engaged in global negotiations with
representatives of many asbestos defendants under the aegis of
the Linscomb global class action pending in this Court.
Fitzpatrick Tr. at 87-89. While those global negotiations never
reached closure, a consensus among members of the plaintiffs’
bar developed about overall average settlement values for each
asbestos-related disease and the respective settlement shares of
the various asbestos defendants. This consensus was taken into
consideration by Plaintiffs’ Counsel in their negotiations with
Fibreboard. Tr. at 650-51, 1129-36.
102. Based upon their own broad experience,
which included the SSP and assignment settlement program
negotiations, the Linscomb negotiations, and the estimates from
264a
Mr. Sinclair and Dr. Nicholson, Plaintiffs’ Counsel formulated
a negotiating position with respect to an assignment-based
global settlement. To do so, Plaintiffs’ Counsel needed to
estimate the number of future asbestos claims against
Fibreboard, the value of those claims, as well as the proportion
of claims representing pre-1959 and post-1959 exposures. The
work that had been done in connection with the Linscomb
action provided appropriate national average settlement values
for various diseases. And Fibreboard's share from time to time
of the national averages could be derived from ACF data and
knowledge of the asbestos litigation. This information provided
a reasonable basis for Plaintiffs’ Counsel to use in global
negotiations. Tr. at 650-52.
103. Prior to and during global negotiations,
Plaintiffs' Counsel kept themselves informed of developments in
the Coverage Case by obtaining and reviewing, inter alia, copies
of the trial court's tentative decisions, the trial court's judgment,
and the briefs submitted to the California Court of Appeal. Tr.
at 643-44; Fibreboard Exh. 500.
104. In addition, later in the negotiating
process the Ness Motley lawyers retained and consulted with
Professor Samuel Dash with respect to ethical issues. Tr. at
1551-53.
105. This Court finds that Plaintiffs’ Counsel
correctly identified those areas in which outside assistance
would help them to negotiate a global settlement more ef-
fectively on behalf of asbestos claimants, and that they took
appropriate steps to obtain such outside assistance. In ad-
dition, this Court finds that Plaintiffs’ Counsel took the
ainsiniil
265a
necessary and proper steps to inform themselves of the perti-
nent facts and law so as to be able to formulate an effective
negotiating position and to carry out their professional re-
sponsibilities in accord with the ethical standards governing
attorneys. Tr. at 412-13.
106. Fibreboard asked that Plaintiffs' Counsel
keep their colleagues in the plaintiffs’ bar informed about global
settlement discussions, and reiterated that Fibreboard would not
pay any non-insurance resources in settlement if it prevailed in
the Coverage Case. Tr. at 215.
107. Continental was informed early in the
global negotiation process, and objected to a global settlement
by way of assignment, as it had objected to any settlements by
way of assignments. Tr. at 216-17.
108. Because Continental was not at the table,
Plaintiffs’ Counsel developed the strategy of first establishing a
ration between the present value of the total settlement amounts
for pre-1959 (insured) and post-1959 (uninsured) claims. To do
so they separately calculated the data for different periods of
exposure, types of exposure, and settlement shares, so that it
could be matched with Dr. Nicholson's projections respecting
the number and types of future cases anticipated to be filed
against Fibreboard. They then took the position that they would
first negotiate only the post-1959 settlement price with
Fibreboard, and that they then would use their predetermined
ratio to derive the settlement price for the pre-1959 claims to
avoid any argument by Continental that Fibreboard had, in effect
made Continental (which would have responsibility for insured
claims) pay for uninsured claims, which were Fibreboard's
266a
responsibility. Fibreboard would retain liability for all amounts
if the Coverage Case failed. Tr. at 217-18, 650-53.
109. The 1991-1992 global negotiations were
conducted with respect to all present and future asbestos-related
personal injury cases against Fibreboard. The parties negoiated
in contemplation of a Rule 23(b)(3) opt-out class action
structure. Given a choice, Plaintiffs’ Counsel preferred an opt-
out settlement class structure, and felt it would be easier to
support legally. Plaintiffs’ Counsel rejected Fibreboard's
suggestions for total or partial mandatory class treatment (of
¢.g. punitive damages claims). Tr. at 218, 649.
110. Negotiations progressed to the point
where the parties apparently had reached agreement on price
terms of $278 million for the post-1959 cases, and $1.86 billion
for the pre-1959 cases. These prices would have covered both
present and future cases. The parties exchanged draft term
sheets in November 1991. Fibreboard Exhs. 528-530.
Fibreboard intended to pay the post-1959 settlement price with
money to be derived from the Pacific | Agreement, together
with credits to be received from Continental under the Interim
Agreement, from some remaining AIG and Home Insurance
Company settlement monies, and from recovery of unpaid
defense costs from Continental. Tr. at 219-20.
111. Difficulties arose, however, in resolving
questions about opt-outs and contribution and indemnity issues,
Tr. at 226-28, and Plaintiffs’ Counsel eventually took the
position in December 1991 that negotiations were terminated.
Fibreboard Exhs. 531, 532; Tr. at 228-30. Further attempts in
1992 to reach agreement on the terms of a global settlement
as Te
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267a
were unavailing, with issues as to how to handle opt-outs and
contribution and indemnity claims continuing to present major
difficulties. Tr. at 230; Fibreboard Exhs. 533-536, 543-545.
112. Continental was kept informed of the
global negotiations, and stated its objections to Fibreboard's
assignment-based global settlement negotiations. Tr. at 216-17,
Fibreboard Exhs. 404, 423. Continental expressed its desire to
negotiate directly with representatives of the claimants,
Fibreboard Exhs. 516, 518; Tr. at 223, and attempted to
participate in negotiations, but Plaintiffs’ Counsel insisted on
negotiating with Fibreboard so long as there was a coverage
dispute. Fibreboard Exh. 519. Continental sought inclusion in
the global negotiations, suggesting the possibility of a resolution
subject to the final decision in the Coverage Case. Fibreboard
Exhs. 522, 523.
113. In March 1992, Continental suggested a
$1.5 billion settlement limited to pre-1959 claims (present and
future), to be paid $100 million a year over 15 years. Other than
$20 million payable yearly during the remainder of the Coverage
Case, the Continental offer was subject to the outcome of that
litigation. Fibreboard Exh. 539. Fibreboard objected to what it
asserted was an improper attempt by Continental to address only
part of the company’s asbestos litigation problem, Fibreboard
Exh. 541, and there were no substantial discussions of the
proposal. Tr. at 228-29.
114. There had also been efforts in April and
May 1992, initiated by Fibreboard, to find a way, satisfactory to
both Fibreboard and Continental, to proceed with global
negotiations with Plaintiffs’ Counsel. Proposals included
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Continental paying Fibreboard an amount of money to take
responsibility for the entire asbestos problem, or Fibreboard
turning over to Continental all its insurance, with Continental to
assume responsibility for the entire problem. Fibreboard Exh.
424. These efforts were unavailing. Fibreboard Exhs. 425, 428,
429.
B. The Initial Ness Motley Agreement
115. In May 1992, when global negotiations
had stalled, Fibreboard expressed an interest in settling all of the
Ness Motley firm's asbestos cases. Tr. at 301, 1075. Mr. Snyder
approached Messrs. Rice and Cox, who entered into
negotiations for Ness Motley clients and on behalf of Ness
Motley affiliate law firms across the country. The cases
involved presented the broad range of asbestos-related diseases.
Tr. at 301-03, 1076-78. These negoi'»*ons continued through
the remainder of 1992. Tr. at 1076-84.
116. Anagreement, now known as the "Initial
Ness Motley Agreement," was signed December 30, 1992.
Fibreboard Exh. 917. It covered 20,000 cases, at an average
price of $13,000 per case, with provisions for adding more
cases. It incorporated the point system, and was based on an
assignment of rights under the Continental policy with respect
to pre-1959 claims. Post-1959 claims were to be paid with
monies derived from the Pacific II Agreement, and thus the
Initial Ness Motley Agreement contained a provision requiring
Fibreboard to obtain a Final 5.2 Order. With the Initial Ness
Motley Agreement, by January 1993 Fibreboard had settlement
agreements in place involving debt to asbestos bodily injury
269a
claimants of over $1.2 billion, including $943 million in
assignment settlements made in 1992. Tr. at 230-31.
C. Negotiations During 1993
1. Early 1993 To April 9, 1993
117. The Initial Ness Motley Agreement
required that Fibreboard obtain Continental's assent to the
assignment underlying it, or a court order approving that
assignment. Thus, pursuant to the Initial Ness Motley
Agreement, on January 11, 1993 Fibreboard filed suit in this
Court against Continental, Fibreboard Corp. v. Continental
Casualty Co., Civil Action No. 6:93cv11 (E.D.Tex.), seeking (i)
a declaration that the assignment in the Initial Ness Motley
Agreement by Fibreboard to the claimants of Fibreboard's rights
under the Continental insurance policy was valid; (ii) a
declaration that the amounts Fibreboard assigned pursuant to
the Initial Ness Motley Agreement were fair and reasonable, and
(iii) a bar order cutting off Continental's equitable contribution
rights as against Pacific. Tr. at 232-33, 1327; Continental Exh.
22. Such a bar order was simultaneously sought by Fibreboard
against Continental in state court in Alameda County, California.
Continental Exh. 23.
118. In February 1993, Continental responded
to this litigation by moving to dismiss or stay the action before
this Court under the Declaratory Judgment Act (based on the
pendency of the Alameda County action), and by moving to
dismiss under Fed. R. Civ. P. 12 for failure to join Pacific as a
party. In the Alameda County action, Continental cross-
complained against Fibreboard for a declaratory judgment that
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Fibreboard's assignment of rights under the Continental policy
and its seeking a contribution bar order constituted breaches of
the policy. Fibreboard thereafter responded, resisting the relief
sought by Continental. Continental Exhs. 22, 23.
119. In early 1993, Continental made a
corporate decision to determine whether it would be possible to
achieve a global resolution of its entire Fibreboard asbestos-
related liability. Tr. at 1330. In connection with this decision,
on February 8, 1993, Continental's parent, CNA Financial
Corporation, publicly announced that Continental would be
seeking to discuss such a global settlement with Fibreboard, and
that Continental was increasing its asbestos-related reserves by
$1.5 billion. Tr. at 1330-31; Fibreboard Exh. 552. Fibreboard,
in response, stated that it was “pleased that CNA has publicly
acknowledged the order of magnitude of its potential liability
arising from prior trial court judgments in Fibre- boards's favor.
Fibreboard has been and remains ready to engage in good faith
settlement negotiations with Continental." Continental Exh. 15.
120. Ata status conference before this Court
on March 10, 1993, at which representatives of Fibreboard,
Con- tinental and Ness Motley were present, the Court and the
par- ties discussed the possible appointment of a Settlement Fa-
cilitator. Tr. at 307-08, 1092-93.
121. On March 23, 1993, the Court appointed
Judge Patrick E. Higginbotham of the United States Court of
Appeals for the Fifth Circuit to act as Settlement Facilitator in
connection with the litigation pending in this Court between
Fibreboard and Continental. Tr. at 1093, 1332; Fibreboard
Exh. 559.
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122. Judge Higginbotham, by letter dated
March 25, 1993, asked the parties for letters setting forth the
status of the matter and the parties’ respective positions
preparatory to a series of meetings before him. Fibreboard Exh.
560. Fibreboard and Continental responded with such letters.
Fibreboard Exhs. 561, 562.
123. As set forth in its letter to Judge Hig-
ginbotham, Fibreboard stated its views that: (i) Fibreboard and
Continental should focus their attention on resolving the issues
raised in Fibreboard's pending litigation in this Court, (ii)
Continental should agree to the terms of the Initial Ness Motley
Agreement; (iii) to the extent that there were discrete aspects of
Fibreboard's litigation in this Court on which agreement between
Fibreboard and Continental could not be reached -- for example,
Fibreboard's prayer for a contribution bar order -- then such
disputed aspects should be adjudicated by the Court on an
expedited basis; and (iv) Continental should not be permitted to
become involved in negotiations between Fibreboard and
Plaintiffs’ Counsel toward a global resolution of all of
Fibreboard's present and future asbestos personal injury
liabilities -- negotiations that Fibreboard said were nearing a
successful conclusion -- unless Fibreboard received assurances
from Continental that Continental's participation in such
negotiations would not cause delay, interference or prejudice to
Fibreboard. Fibreboard Exh. 562.
124. Continental's understanding was that the
focus of the settlement effort was intended to be an attempt to
achieve a global settlement. Tr. at 1332-33. As set forth in
Continental's letter to Judge Higginbotham, Continental believed
that there were several major obstacles to a global settlement
272a
with Fibreboard, namely: (i) the Pacific 11 Agreement, whereby
the parties to that agreement agreed to rescind the Pacific policy
with the purported effect of extinguishing Continental's right to
contribution from Pacific, in exchange for a payment by Pacific
to Fibreboard of up to $360 million; (ii) Fibreboard's assignment
settlement program, including the threat of a global resolution
of Fibreboard's asbestos liabilities by means of an assignment
settlement be- tween Fibreboard and Plaintiffs’ Counsel without
Continental's consent; (iii) obstructed communication between
Continental and representatives of asbestos claimants, which
Continental claimed prevented it from participating at the
bargaining table; and (iv) alleged interference by Fibreboard with
Continental's ability to acquire information regarding asbestos
claimants asserting claims against Fibreboard. Tr. at 1333-34;
Fibreboard Exh. 561.
125. Continental was also of the view in
March 1993 that any global settlement with Fibreboard had to
be structured as a non-opt-out class action settlement. This
was a sine gua non for Continental, for several reasons. First,
structuring the settlement on an opt-out basis could give the
asbestos plaintiffs the equivalent of a “one-way option," in that
if the Insurers were successful in the Coverage Case appeal
there would likely be virtually no opt-outs from the settlement,
whereas if Fibreboard were successful in the same appeal there
might be a large number of opt-outs. Tr. at 1334-35. This
analysis was predicated on an assessment that the likely time of
decision by the California Court of Appeal in the Coverage
Case would be before any date where one could anticipate that
a plaintiff class would be given the right to decide whether or
not to opt out of the settlement. Tr. at 1335-36.
273a
126. Second, Continental was not willing to
contribute the major portion of a multi-billion dollar settlement
and give up its right to continue litigating the Coverage Case
appeal -- and thereby perhaps eliminate any liability to Fi-
breboard -- unless it could thereby achieve certainty with respect
to the magnitude of its liabilities under the insurance policy it
had issued to Fibreboard. Continental thus regularly insisted
that any global settlement provide it with "total peace” with
respect to asbestos-related liability. Continental did not believe
that it could make an accurate assessment of the ultimate
liability that would be associated with those class members who
would choose to opt out of a future-claimants asbestos class
action such as that being contemplated." The contemplated
class action differed in this regard from most class actions --
such as securities fraud class actions -- where the defendant can
determine with reasonable accuracy at the outset the potential
value of the opted-out claims. Tr. at 324, 1336-38, 1569-72.
127. For their part, Messrs. Rice and Cox
were of the view that Fibreboard and Continental had to reach
an agreement resolving the differences between them before
Con- tinental should be permitted to participate in global settle-
ment negotiations with Plaintiffs’ Counsel. Tr. at 1097-98. In an
April 5, 1993 letter to Fibreboard’s counsel, Mr. Cox stated two
preconditions to Plaintiffs’ Counsel's entering into global
settlement negotiations. First, Mr. Cox was to be provided with
a copoy of any written Fibreboard-Continental agreement that
"While experts can assess -- although with uncertainty -- the value of
a broad mix of future claums based on diseases that become manifest over a long
period of time, there is little or no basis on which to predict which type: of
claims -- more serious than average, less serious than average, or simply average
-- will be presented by those individuals who might choose to opt out.
274a
was reached, no later than April 9, 1993. And second,
Continental was to advise Plaintiffs’ Counsel that Continental
had sufficient information to Commence global negotiations.
Mr. Cox further emphasized that, in his view, the original,
primary focus of the negotiations before Judge Hig- ginbotham
was with respect to a settlement of the Ness Motley cases.
Fibreboard Exh. 563.
128. Fibreboard and Continental then engaged
in extremely hard-fought, arm's-length, contentious negotiations
that led to an agreement between them on April 9, 1993 (the
"April 9 Agreement"). Tr. at 308-10, 1340, 1349; Fibreboard
Exhs. 566, 908. Fibreboard believed that it had the right to
enter into assignment settlements without Continental's con-
sent. Plaintiffs’ Counsel had agreed in principle to enter into a
globa! settlement with Fibreboard funded by an assignment of
rights against Continental and the proceeds of its settlement with
Pacific. Fibreboard was thus unwilling to give up this position
unless Continental agreed that it could only enter into a global
settlement that would not require contribution of any of
Fibreboard's non-insurance assets. Tr. at 309-12.
129. The April 9 Agreement provided, inter
alia, that the parties would use their best efforts to achieve a
global resolution of Fibreboard's asbestos liabilities, including
the resolution of present cases and resolution of future asbestos
personal injury claims.'’ In addition, Continental agreed that it
‘The April 9 Agreement expressly provided, however, that the "best
efforts” clause in the agreement did not “obligate Continental to pay or obligate
itself with respect to any particular amount or amounts of money or to agree to
any particular term or terms in order to achieve" such a global resolution.
(continued...)
275a
would not seek to reach a global settlement without Fibreboard's
participation, and that any globai settlement Continental did
conclude with Fibreboard would be funded entirely within
Fibreboard's available insurance resources. Tr. at 309-312,
1345-49; Fibreboard Exh. 908. Such a provision -- excluding
Fibreboard's non-insurance assets from any global settlement --
had been Fibreboard's corporate goal for many years and
continued to be a sine qua non for Fibreboard. Tr. at 144, 1349,
1588-89. Continental also agreed to pay the monies that Pacific
had agreed to pay under the Pacific Il Agreement under the
same conditions and as if a Final 5.2 Order had been entered.
This meant that if Continental were successful in voiding the
Pacific Il Agreement, Continental would nonetheless stand
behind the monetary obligations of that agreement. Tr. at 310,
Fibreboard Exh. 908 at 4 6(b).
130. The April 9 Agreement achieved several
important purposes for Continental. First, it prevented
Fibreboard from entering into any settlements -- including any
further assignment settlements -- without Continental's consent.
Second, Continental obtained direct access to global negotia-
tions with Plaintiffs’ Counsel. In addition, Continental ob-
tained certain releases from Fibreboard, including a release with
respect to asbestos property damage claims. Tr. at 1344;
Fibreboard Exh. 908.
131. In the April 9 Agreement, Fibreboard
obtained a number of important commitments from Continental:
(i) most important, an undertaking -- which Fibrebcard viewed
'7(__ continued)
Fibreboard Exh. 908 at 1, ¥ 1.
278a
136. On the moming of April 30th,
Continental made a global settlement offer to Plaintiffs’ Counsel
to settle all of Fibreboard’s present and future asbestos personal
injury claims for $2 billion face amount, to be paid over 25
years. The offer continued to be conditioned upon the settlement
being structured on a non-opt-out basis, as well as an adequate
contribution from Pacific. Plaintiffs’ Counsel briefly considered
this offer among themselves and then returned to the negotiating
room, stating that they believed that they had been presented
with a “take-it-or-leave-it” offer, and that they would leave it.
Plaintiffs’ Counsel then walked out of the meeting. Tr. at 314-
16, 1100, 1352-56.
137. For a period of time thereafter, Plaintiffs’
Counsel took the position that the global settlement negotia-
tions had terminated, that the only issue for discussion was the
resolution of the Ness Motley litigation, and that Judge
Higginbotham’s role was limited to assisting in that resolu- tion.
Continental and Fibreboard took the position that global
negotiations were not over, and the Judge Higginbotham should
encourage the parties to continue global negotiations. Tr. at
317-19, 1101-02, 1356-57, 1538; Fibreboard Exhs. 567, 572,
574-576.
138. Judge Higginbotham convened a meeting
on May 5, 1993 in New Orleans attended by Fibreboard,
Continental, Pa- cific and Messrs. Rice and Cox. At that
meeting, Continental urged strongly that global negotiations be
continued. Mr. Rice continued to insist that global negotiations
were over, as long as Continental continued to insist -- as it did
at that meeting -- that any global settlement be done on a non-
opt-out basis, and that there be an adequate financial
279a
contribution from Pacific. Pacific continued to state that the
Pacific Il Agreement resolved its Fibreboard asbestos- related
liabilities. | Nevertheless, Judge Higginbotham directed
Continental and Messrs. Rice and Cox to set forth in writing
their positions with respect to the structure of a global
settlement (opt-out or non-opt-out) and the price of any such
settlement. Continental and Messrs. Rice and Cox did so, in
letters dated May 12, 1993 and May 17, 1993, respectively. Tr.
at 1355-58, 1370, 1538; Fibreboard Exhs. 568, 574.
139. Judge Higginbotham convened another
meeting in Washington, D.C., on May 17, 1993. Following
their meeting with Judge Higginbotham, Continental, Fibreboard
and Messrs. Rice and Cox met to discuss a resolution of the
litigation concerning the Initial Ness Motley Agreement.
Although Messrs. Rice and Cox took the position that formal
global negotiations had ceased, and that they had no authority
to negotiate on behalf of Messrs. Kazan and Wartnick,
Continental and Fibreboard continued to seek to restart global
negotiations, and Mr. Wachtell indicated that he would be
willing to recommend to Continental a global price higher than
that offered to Plaintiffs’ Counsel on April 30. Tr. at 320, 1101-
03, 1373-74. The global settlement being discussed continued
to assume a settlement of both present and future claims. Tr. at
324-25, 1399-1400.
140. In late May 1993, during the course of
nego- tiations concerning a settlement of the Ness Motley cases,
informal meetings took piace among Fibreboard, Continental
and Messrs. Rice and Cox in an effort to find a way to make
progress on a global settlement. No avenue for progress was
found. As a consequence, representatives of Continental and
276a
as enforceable in court -- that Continental would use its best ef-
forts to accomplish a settlement of all of Fibreboard's asbestos-
related personal injury liabilities, pre-1959, post- 1959, settled,
present, and future, within Fibreboard’s remaining insurance
resources; (ii) Continental's agreement to provide a full defense
for pre-1959 cases and to pay indemnity and defense costs up to
a specified limit ($95 million) for post-1959 cases; (iii) an
undertaking by Continental to pay the monies Pacific had agreed
to pay in Pacific Il, as if a Final 5.2 Order had been entered; and
(iv) a release of certain claims. Tr. at 309-12, 1344-49;
Fibreboard Exh. 908.
132. Attempts by Continental during this
period of time to enlist Pacific's agreement to participate in
negotiations were unsuccessful. Pacific was of the view that it
had entered into a binding agreement with Fibreboard that, upon
entry of the court order being sought by Fibreboard in the action
in this Court, would resolve its Fibreboard asbestos- related
liability. Accordingly, Pacific rejected Judge Higginbotham's
suggestion that it participate in global settlement negotiations.
Tr. at 1349-50.
2. April 9, 1993 to August 9, 1993
133. In response to the Fibreboard suit seeking
approval of the Initial Ness Motley Agreement, and once having
reached the April 9 Agreement, on April 13, 1993 Continental
commenced a separate suit in this Court against both Fibreboard
and Pacific, seeking a declaration that Continental's rights to
equitable contribution against Pacific were unaffected by the
Pacific II Agreement. Continental Casualty Co. v. Pacific
Indemnity Co, and Fibreboard Corp., Civil Action No. 6:93cv
277a
223 (E.D. Tex.). That suit was subsequently consolidated with
Fibreboard's action relating to the Initial Ness Motley
Agreement. Tr. at 1350; Fibreboard Exh. 329, Continental
Exh.24.
134. On April 27, 1993, the California Court
of Appeal notified the parties to the Coverage Case appeal that
oral argument had been scheduled for June 11, 1993, with re-
spect to a discrete group of appellate issues. The notice
indicated that oral argument upon the Coverage Case appeal
would be conducted in several “issue groups" (each dealing with
a different group of appellate issues). The notice gave no
indication, however, as to the schedule for completing the
additional rounds of oral argument. Fibreboard Exh. 243.
Indeed, the first notice was followed in short order by further
notices from the Court of Appeal scheduling additional rounds
of oral argument on the Coverage Case appeal. Continental Exh.
32, Fibreboard Exhs. 247, 248.
135. Having met the preconditions set forth in
Mr. Cox's letter of April 5, Fibreboard Exh. 563, on April 29
and 30, 1993 discussions concerning a global settlement were
held in Washington D.C. among Continental, Fibreboard, and
Plaintiffs’ Counsel. On the 29th, Herbert M. Wachtell, counsel
for Continental, set forth Continental’s negotiating positions,
including its positions that any settlement must be on a
mandatory non-opt-out basis, and that a prerequisite to any
global settlement was an acceptable level of contribution from
Pacific. Plaintiffs’ Counsel rejected both of these positions, and
insisted that Continental put a concrete economic proposal on
the table. Tr. at 314, 1099-1100, 1352, 1355.
280a
Fibreboard began discussions during June 1993 regarding the
possibility of the two parties entering into a “bilateral”
settlement of the insurance coverage dispute without the
participation of Plaintiffs’ Counsel. Several meetings were held
between Continental and Fibreboard during June toward that
end. By the end of June it was apparent that Fibreboard and
Continental would not be able to reach such an agreement, with
key issues such as price and Continental’s demand of an
acceptable contribution from Pacific unresolved. Tr. at 316- 17,
1375-79.
141. On June 15, 1993, representatives of
Continental met with all of Plaintiffs’ Counsel, including Messrs.
Kazan and Wartnick, at the Caplin & Drysdale offices in Wash-
ington, D.C. Continental explained again why any global
settlement would have to be structured as a non-opt-out deal
that would provide Continental with certainty as to the cost of
the deal at the outset. Plaintiffs’ Counsel stated that they
required a clearer indication of what Continental would be
willing to pay in the early years of a settlement. Continental
stated that it could be somewhat more flexible on price.
Plaintiffs’ Counsel conferred among themselves, and then --
having concluded that, for persuasive reasons, Continental
simply would not proceed on an opt-out basis -- informed
Continental that they would be willing to consider a Rule
23(b)(1)(B) global class action settlement if Continental could
articulate the legal basis for such a_ structure, and on the
understanding that the global settlement would cost Continental
more if done on a non-opt-out basis. Plaintiffs’ Counsel left
Continental’s representatives with a list of questions to which
they would require responses. Tr. at 392-93, 657-58, 1125-27,
1381-84, 1392-93, 1444-50, 1572; Class Plaintiffs Exh. 1015 at
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1-2. Again the contemplation of the discussion was a global
settlement of both present and future claims. Tr. at 324-25,
393, 1399-1400.
142. During June and July 1993, negotiations
with respect to the Ness Motley cases continued among
representa- tives of Continental, Fibreboard, and Ness Motley.
Tr. at 1103-05. Mr. Rice insisted on a settlement price of
$13,000 per pre-1959 claim. Tr. at 1394-95.
143. Notwithstanding the April 9 Agreement
between Continental and Fibreboard, Fibreboard was still
contractually obligated to procure a court order validating its
right to enter into assignment settlements, and Continental faced
the prospect that such an adjudication would require it to pay
Out on assignment agreements at case values it considered to be
markedly inflated. Therefore, Continental desired to renegotiate
these agreements as three-party deals, and Fibreboard and
Continental created a national settlement program to do so. Tr.
at 312-13, 1395-96.
144. Under that settlement program,
representatives of Fibreboard and Continental met with various
plaintiffs’ counsel across the country with whom Fibreboard had
entered into assignment settlements without Continental’s
consent, and jointly sought to convert the assignment
settlements into “three-party” settlements to which Continental
was a party. As part of the national program, Continental and
Fibreboard also met with plaintiffs’ counsel who had no
assignment settlements in an effort to settle their cases as well.
Tr. at 1395-97. All such contemplated three-party settlements
involved payment of part of the settlement in cash, with the
282a
balance contingent on either a settlement of the Coverage Case
or a litigated loss of the Coverage Case by Continental. Tr. at
321, 1395-96, 1408-09. Ultimately, the renegotiated
settlements reflected lower nominal values than the assignment
agreements they replaced due to the cash component. Even so,
the assignment program invariably resulted in renegotiated
values that were still higher than Fibreboard’s historical
settlement averages. Tr. at 321-23, 522, 633, 931-32, 1082- 84,
1102-05.
145. During the course of this settlement
program it became apparent that other plaintiffs’ counsel were
reluctant to enter into three-party settlements without an
established standard for such a settlement, lest they find that
they had entered into a less advantageous settlement for their
clients. Accordingly, the conclusion of a three-party settlement
of the Ness Motley cases came to be viewed as essential to
concluding other three-party settlements because it could
provide an acceptable benchmark. Tr. at 1396-97.
146. By early July the parties to the Ness
Motley negotiations were close to agreement on price, as well
as the size of the cash component. The balance would be
contingent on either a settlement of the Coverage Case or a loss
by Continental of the Coverage Case. Tr. at 1128, 1398.
147. On July 13, 1993, Messrs. Rice and Cox
met in Dallas with Judge Higginbotham and representatives of
Conti- nental and Fibreboard. At that meeting Judge
Higginbotham offered his view that a global settlement covering
both present and future cases appeared too complex to
negotiate. Tr. at 324-25, 1659-61. Accordingly, he suggested
283a
that any global settlement be limited to future cases, and that a
settlement of the Ness Motley cases -- which could serve as the
model for settling the presently pending Fibreboard cases --
should precede further global negotiations. Tr. at 1398- 1400.
148. In late July 1993 the parties to the
Coverage Case appeal were informed by the California Court of
Appeal that oral argument upon the final issue group of the
appeal had been scheduled by that court for August 27, 1993.
Tr. at 329, 1400-01; Fibreboard Exh. 248. The parties to the
appeal (and, through them, Plaintiffs’ Counsel) thus knew that
the appeal would be finally submitted to the court for decision
on that date. Indeed, the belief was held among at least some of
the parties to the global negotiations that the court might issue
its decision immediately following the conclusion of oral
argument. Tr. at 329."*
149. The parties had agreed on July 13 that the
appropriate way to proceed was to conclude the renegotiation
of the Initial Ness Motley Agreement as a three-party
agreement, and that this process had to take precedence over
continued negotiation of a global settlement. Although
Continental had been somewhat successful in slowing down the
course of the Fibreboard v. Continental litigation in this Court,
Messrs, Rice and Cox were actively seeking to have it proceed
to trial promptly (as was Fibreboard, which was contractually
bound to join them in that effort). Thus Continental faced the
"in any event, provisions of the California State consti-tution made it
highly likely that the California Court of Appeal would issue its decision within
90 days following the August 27 oral argument. Constitution of the State of
California, Art. VI, § 19.
284a
very real prospect the trial would go forward promptly if no
three-party settlement of the Ness Motley cases were reached.
However, Continental deemed it tactically very undesirable to
challenge the Final 5.2 Order being sought by Fibreboard --
which order had been structured in the Initial Ness Motley
Agreement to bar not only contribution claims with respect to
Ness Motley cases but as to all asbestos claims -- in a context
where such an order was a condition precedent to a settlement
of over 20,000 asbestos cases. Tr. at 1386-87, 1400-06.
150. Moreover, Continental had decided that
as long as Pacific had the prospect of obtaining approval of a
bar order against Continental at a cost of only $330 million,
there was no realistic possibility of bringing Pacific to the
bargaining table to bear what Continental felt was Pacific’s fair
share of a global settlement. Accordingly, Continental
concluded that the only way to reach a global settlement and
avoid a very damaging loss in Fibreboard v. Continental was to
negotiate first a new settlement of the Ness Motley cases. Tr. at
1350, 1385-87, 1400-07.
151. With the continued active assistance of
Judge Higginbotham, and after hard-fought, arm’s length
negotiations, on August 5, 1993, Continental, Fibreboard and
representatives of Ness Motley agreed to an amended Ness
Motley Agreement (the “Substitute Ness Motley Agreement”)
settling substantially all of Ness Motley’s presently pending
claims. The Substitute Ness Motley Agreement resolved
approximately 45,000 presently pending asbestos-related
persona! injury claims against Fibreboard. Tr. at 321-23, 1128-
29, 1402-04; Fibreboard Exh. 586.
285a
152. The Substitute Ness Motley Agreement,
compared to the Initial Ness Motley Agreement, reflected a
reduction in the per-claimant settlement amounts, an increase in
the number of cases settled, and the modification of numerous
other pro- visions of the original agreement. The Substitute
Ness Motley Agreement also provided for counsel participating
in the agreement to recommend to their future asbestos clients
an offer to settle their claims against Fibreboard on the same
terms as those offered to settle present claims. The Substitute
Ness Motley Agreement did not obligate any future claimants to
accept those settlement terms and expressly provided for the full
representation by Ness Motley of any person who rejected those
settlement terms. In addition, Fibreboard and Continental were
not required to offer those terms if more than a certain
percentage of the Ness Motiey future claimants elected to reject
the terms. Tr. at 321-33, 1402; Fibreboard Exh. 909.
153. The Substitute Ness Motley Agreement,
by its terms, was subject to approval by the Court as fair and
reasonable, and such approval was sought from this Court on
August 5, 1993. On August 9, 1993, after reviewing the
agreement itself and conducting a hearing in which this Court
considered reports from the parties, from Professor Samuel
Dash, and from Judge Higginbotham, this Court gave that
approval. Tr. at 1407, 1413; Fibreboard Exh. 588.
3. August 9, 1993 to August 27, 1993
154. After the conclusion of the Substitute
Ness Motley Agreement, Judge Higginbotham addressed a letter
to this Court stating that “I am persuaded that given the
momentum of this successful negotiation, you should consider
286a
directing counsel to proceed [to explore a settlement of future
claims],” and observing that “we could have no better set of
parties and counsel to attempt its passage.” Fibreboard Exh.
586.
155. By statement on the record on August 9,
and a formal order of August 11, 1993, this Court appointed
Plain- tiffs’ Counsel to act as negotiating counsel on behalf of a
class of future claimants who were exposed to Fibreboard
asbestos-containing products and who may have contracted or
might in the future contract an asbestos-related disease.
Fibreboard Exhs. 588, 589. The negotiating parties did not in
any way deem themselves to be bound in this respect and, in-
deed, in negotiations subsequent thereto active consideration
was given to agreeing upon a combined global settlement of
both present and future claims. Tr. at 325, 1426-27.
156. Although Messrs. Kazan and Wartnick
were orally designated by this Court to participate in the global
settlement negotiations under the condition that they first notify
the Court that all of their existing claims against Fibreboard had
been resolved, the Court's formal order contained no such
condition. This appointment included, in addition to Plaintiffs’
Counsel, Mr. Robert E. Sweeney, Esq. Tr. at 1407-12;
Fibreboard Exhs. 588, 590.
157. Immediately upon the signing of the
Substitute Ness Motley Agreement, Continental requested that
Continental v. Pacific and Fibreboard be set for trial as soon as
possible. Now that it could be separated from the issues that
would have been involved in litigating the approval of the Initial
Ness Motley Agreement, Continental was willing to have the
287a
issue of the validity of a Final 5.2 Order decided. Moreover,
Continental wanted an immediate trial of its case so that Pacific
would be motivated to join the negotiations before the
California Court of Appeal rendered a decision in the Coverage
Case. Fibreboard Exh. 588.
158. At the same time, this Court requested
Judge Higginbotham to continue to serve as Settlement
Facilitator (i) with respect to the pending Continental v. Pacific
and Fibreboard litigation; and (ii) if Judge Higginbotham were
agreeable, with respect to the negotiations for a global future
claims-only settlement. Fibreboard Exh. 588.
159. Continental, Fibreboard and all of
Plaintiffs’ Counsel met later on the evening of August 9, 1993
at the Adolphus Hotel in Dallas, and intensive meetings
continued through August 12, 1993. Although the parties
present at those meetings did reach an agreement to use a
negotiating benchmark of 186,000 future claims against
Fibreboard, these meetings produced no price agreement
because price negotiations were difficult, given Continental’s
position that any settlement would require an “acceptable” level
of contribution from Pacific, and Plaintiffs’ Counsel’s
unwillingness to enter into such a contingent settlement. The
negotiations for a global settlement during those meetings were
not limited to a future claims-only deal, but continued to
coniemplate a global that would include all claims, both present
and future. Indeed, the negotiations concluded with an offer by
Plaintiffs’ Counsel to price three different settlement
alternatives: an all-inclusive global settlement, a settlement of
unsettled present and ail future claims, or a future claims-only
global settlement. Tr. at 984, 1184-85, 1414-20.
288a
160. During the Spring and Summer of 1993,
at the same time that Plaintiffs Counsel were in intense
discussions with Fibreboard and the Insurers, they and other
representa- tives of asbestos victims were involved in resolving
the fi- nancial difficulties facing the Manville trust. As part of
the Manville negotiations, which involved dozens, if not
hundreds, or lawyers across the country representing asbestos
claimants as well as the Manville trust and other asbestos
defendants, the participants developed what they considered to
be fair values for the Manville settlement share of claims against
that trust. The claims values thus developed for the Manville
trust were congruent with the values developed by Plaintiffs’
Counsel in Linscomb. Tr. at 1130-33.
161. The average settlement values for the
Manville settlement share by disease developed in 1993 were as
follows:
Mesothelioma $200,000
Lung Cancer $75,000
Other Cancers $40,000
Asbestosis $37,500
Pleural Disease $12,000
Tr. at 1131.
162. In connection with the Linscomb and
Manville negotiations, Plaintiffs’ Counsel developed an
understanding of the respective settlement shares of all asbestos
defendants. Generally, Manville’s share was 30% to 33%, while
ACF members collectively bore responsibility for 80% to 85%
of the remainder. Tr. at 1133. Plaintiffs’ Counsel learned that
Fibreboard, an ACF member, was responsible for approximately
289a
12% of the ACF liabilities. Thus, by arithmetic, Plaintiffs’
Counsel were able to isolate a settlement share range for Fi-
breboard as between 6% and 7% of the total (80% x 70% x
12%), and to apply that range to the average case settlement
values by disease that they had developed. Tr. at 1133. That
calculation produced the following Fibreboard settlement share
ranges:
Di Total Liabil Fibreboard SI
Manville share (30%) (33%) (6%) (7%)
Mesothelioma 600,000 660,000 36,000 to 46,200
Lung Cancer 225,000 247,500 13,500 to17,325
Other Cancer 120,000 132,000 7,200 to 9,240
ALDI 112,500 123,750 6,750 to 8,662
ALD Il 36,000 39,600 2,160 to 2,772
Tr. at 1134-36.
163. During global negotiations in 1993 with
Fibreboard and the Insurers, Plaintiffs’ Counsel based their
negotiating positions on the average settlement values
developed in Linscomb and developing in Manville, and also
compared them with values reflected in the Initial Ness Motley
Agreement and evolving in the negotiations of the Substitute
Ness Motley Agreement. Tr. at 1129-33, 1157.
164. Based on the foregoing, the Court finds
that it was reasonable from the standpoint of members of the
Global Health Claimant Class for Plaintiffs’ Counsel to use these
settlement values in the global settlement negotiations during
1993.
290a
165. On August 16 and 17, 1993, there was a
meeting in Atlanta of the Ness Motley-affiliated law firms (as
well as other attorneys) to discuss, among other things, the
recently concluded Substitute Ness Motley Agreement and the
status of the Fibreboard global negotiations. The meeting was
attended by all of Plaintiffs’ Counsel. Stephen Snyder
(representing Fibreboard) and Meyer G. Koplow (representing
Continental) attended to address the meeiing on the Coverage
Case. Informal discussions among the negotiators then present
made it apparent that a solution to the Pacific issue needed to be
found or a global agreement would not be reached. Tr. at 1452-
53, 2448. Although the parties recognized that they should
endeavor to reach a settlement by August 27, Continental's
action against Fibreboard was not scheduled to commence until
September 13, 1993. Tr. at 1420-21, 1458-60.
166. On August 18, 1993, Continental and
Pacific representatives each met with Judge Higginbotham in
Dallas. Continental was seeking to obtain an agreement from
Pacific to share in the cost of a global settlement so that the
issue of an acceptable level of contribution from Pacific could be
removed as an obstacle to a deal. Pacific maintained its position
that it would not participate in global settlement negotiations.
Tr. at 1422-23.
167. Having failed to bring Pacific to the
negotiating table, Mr. Koplow met with Messrs. Rice and Cox
on August 20, 1993 in Charleston to discuss a structure for a
global settlement without up-front participation by Pacific,
which would potentially leave Pacific with exposure to massive
ongoing liability. Such an alternative structure would have
entailed Continental in the first instance contributing more than
291a
its equitable share of a global setilement, with the hope of
eventually recouping its overpayment. At the August 18
meeting with Judge Higginbotham, Continental had exposed its
alternative structure to Judge Higginbotham to solicit his views
and reactions. Although Messrs. Rice and Cox pressed for a
Continental commitment to do such a deal, Mr. Koplow stated
that he would require until the night of Sunday, August 22 --
when negotiations were set to resume in Philadelphia --either to
bring Pacific to the table or to commit to proceed on a deal
without Pacific. Tr. at 1421-22, 1424.
168. High-level § discussions —_ between
Continental and Pacific thereupon took place over the weekend
of August 21 and August 22, 1993 in New York. On Sunday,
August 22, Continental and Pacific reached a memorandum
agreement, subject to the approvals of their respective boards of
directors (which subsequently were given), to resolve the
dispute between them with respect to equitable contribution
rights. (This agreement was subsequently superseded by an
agreement between them dated October 12, 1993.) Tr. at 1422-
25; Continental Exhs. 20, 21.
169. Pursuant to that agreement, Pacific
agreed to share with Continental the costs of funding a global
settlement of future asbestos-related personal injury claims
against Fibreboard, on the basis of Continental paying
approximately 65% of the total amounts that would be required,
with Pacific being responsible for the remaining 35%. They also
agreed to share the costs of satisfying liabilities on any existing
asbestos-related personal injury claims, pursuant to a separate
provision of that agreement. In the event no global settlement
or other resolution of the insurance coverage dispute was
292a
reached or the requisite court approvals were not obtained,
Continental and Pacific agreed that the parties would continue
to contribute on the same shared basis toward satisfying
Fibreboard's liabilities to asbestos personal injury claimants to
the extent that either or both of them were finally determined in
the Coverage Case to be responsible for such liabilities.
Continental Exhs. 20, 21.
170. As _ scheduled, global negotiations
resumed in Philadelphia at the Four Seasons Hotel on the
evening of Sunday, August 22, 1993. Fibreboard, Continental
and Plaintiffs’ Counsel, as well as Mr. Sweeney, were present.
Everyone was informed of the Continental-Pacific agreement
and the negotiations proceeded. Tr. at 329-30, 409-10.
Continental indicated that the Insurers’ preference was to
negotiate a global settlement of both present and future claims,
and asked Plaintiffs’ Counsel to price an all-inclusive global
settlement. Although Plaintiffs’ Counsel expressed a willingness
to do so ten days earlier in Dallas, they now stated that they
were unwilling to do any global deal that included present cases.
The reason given was an inability to satisfy themselves as to the
remaining Fibreboard exposure on unsettled present cases. The
quality and quantity of information that existed as of August 22,
1993, were not adequate for Plaintiffs’ Counsel to be willing to
price a global settlement including these claims.’ Thus, the
*Piaintiffs’ Counsel’s position in this regard is understandable. It is
apparent from the testimony that neither Fibreboard nor Continental was in a
position to fix with any degree of precision the number or source of unsettled
present claims against Fibreboard. Tr. at 713-15, 719-20, 2677-79, Fibreboard
Exh. 827. Any significesa underestimation of present cases would have a much
larger effect on a settlement fund than underestimates of claims that would
(continued...)
293a
parties proceeded to focus solely on a future claims-only global
settlement. An offer of $1.3 billion from Continental was
rejected by Plaintiffs’ Counsel. Tr. at 329-31, 1426-27, 1442-
45, 1573-74.
171. Throughout the negotiations following
the April 9 Agreement, Plaintiffs’ Counsel had raised the issue
of the value of Fibreboard's equity in any settlement where
there would be no further recourse to Fibreboard or the
Insurers. On the night of Monday, August 23, 1993, Continental
increased the Insurers’ offer by $200 million to $1.5 billion, and
indicated that it would be their final offer. Continental viewed
the $200 million amount of the increase as approximately
equivalent to the maximum value of Fibreboard, and offered it
to compensated for the fact that Fibreboard's non-insurance
assets were not available due to the April 9 Agreement. The
Insurers deemed that the $1.5 billion amount was an amount
that would and should be acceptable to Plaintiffs’ Counsel. Tr.
at 1445-50. Indeed, the Insurers’ counsel had no authorization
from their clients to agree to a higher amount, and the
Continental-Pacific agreement reached the previous Sunday had
as its express premise that the amount needed to reach a global
settlement was $1.5 billion. Tr. at 1444-47, 1462, 1471;
Continenta! Exh. 20.
172. Even though Plaintiffs’ Counsel had
previously determined that they would settle if they could get
$1.5 billion, Tr. at 1014-16, the Continental-Pacific offer was
likewise rejected, with some of Plaintiffs’ Counsel walking out
'9(_ continued)
appear over a period of years. _
294a
of the meeting. Negotiations broke off. It was, however,
agreed that one, final, last-ditch effort would be made to reach
agreement before the submission of the Coverage Case appeal
on Friday, August 27, 1993. The parties agreed to convene in
Tyler, Texas in the early afternoon of Thursday, August 26,
1993, for one final negotiating effort, with Court assistance in
the discussions. Tr. at 331-32, 1444-51. The Insurers viewed
this as yet another effort by Plaintiffs’ Counsel to extract every
last cent from the Insurers’ pockets. Tr. at 1464-65.
173. The global settlement discussions
reconvened in the Court's chambers on the afternoon of August
26, 1993. All parties were represented. This was the first direct
involvement of this Court in these discussions. The parties
outlined their positions and the Court spent several hours
listening to parties state their unwillingness to change their
positions. In particular, Plaintiffs’ Counsel sought to obtain
from Fibreboard a contribution to the settlement of cash beyond
the money to be paid by Fibreboard's insurers. No progress was
made during several hours of those discussions. Tr. at 332-33,
1457-65.
174. Late in the afternoon on August 26, as
the Courthouse was closing, the principal negotiators for each
party were driven to the Court's home for further discussions.
After several more hours of discussion, Continental's counsel
agreed to recommend to Continental an increase of $25 million
and Fibreboard agreed to contribute $10 million remaining from
its settlement with Home Insurance Company. Tr. at 333-35,
1465-73. The next morning, the Insurers agreed to this
increase, and a global settlement amount of $1.535 billion was
reached. Tr. at 1473-74.
295a
175. The evidence is uncontroverted that
throughout the negotiations conducted on August 26 and
August 27, 1993, the Court's role was the normal role of a court
assisting the parties in reaching an agreement, if they could do
so. Tr. at 752-54, 1014-18, 1279-85, 1465, 1469, 2450-51.
176. Despite this agreement on the price of the
settlement, Plaintiffs’ Counsel continued to insist throughout the
day on August 27 on a number of additional non-price
conditions to a deal. These included issues with respect to
interest payments on the $1.525 billion contribution of the
Insurers to the Settlement, timing of the payment of the
Fibreboard $10 million contribution, claims processing
arrangements, the cut-off date for class membership (whether it
should be the midnight preceding August 27 or the midnight yet
to come), and, most significant, Plaintiffs’ Counsel's insistence
on a backup agreement between Fibreboard and the Insurers
resolving the insurance dispute. Tr. at 1285, 1474-77.
177. Throughout the negotiations that
followed the meetings in Dallas the week of August 9, 1993,
Plaintiffs’ Counsel insisted that they would not agree to a global
settlement unless Fibreboard and the Insurers would agree to a
“backup” resolution of the Coverage Case that would become
operative if for any reason a global settlement failed to achieve
final court approval. Tr. at 1052-53, 1181-83, 1632. Plaintiffs’
Counsel were unwilling to permit a circumstance in which the
Insurers might get a “free look” at the ultimate result in the
Coverage Case while a global settlement was pending approval
in the courts. Tr. at 707-08, 913-14, 115354. The Insurers
were unwilling to agree to such a condition unless such an
agreement would cost them no more than a global settlement.
296a
This was resisted by Fibreboard, which contended that far more
money would be required for defense costs outside the context
of a global settlement to put Fibreboard in the same position it
would be with a global settlement. Tr. at 332-36, 1474-78. The
Insurers were nevertheless adamant that they would not agree
to pay any more in the context of a backup agreement than in a
global agreement, and, late in the afternoon of August 27, 1993,
Fibreboard reluctantly acceded to this principle as the price of
permitting an agreement to be reached with respect to a globai
settlement. Tr. at 334-36, 592-94, 1379-80. The backup
settlement is what is now referred to as the “Trilateral
Settlement.”
178. During the afternoon of Friday, August
27, 1993, as discussions continued, the parties were advised that
the California Court of Appeal, at the oral argument on the last
phase of the Coverage Case appeal, had indicated that it would
rule on the appeal expeditiously. Although this acted as a
further impetus for resolving remaining differences, not until five
o’clock in the afternoon on August 27 after this Court advised
the parties that it would soon close for business was agreement
reached in principle on the basic terms of the global settlement
now before this Court (the “Global Settlement”). Tr. at 1480-
81.
179. The terms of the Global Settlement
agreement in principle were announced on August 27 in open
court, as follows: Continental and Pacific, on behalf of
Fibreboard, would pay into an escrow account their respective
shares (pursuant to their sharing agreement) of the cash
equivalent of $1.525 billion, plus interest commencing on
August 27, 1993, such payment to be made no later than
297a
January 1, 1994.” In addition, Fibreboard would make a
contribution of $10 million to the settlement. These funds
would be used by the Trust to resolve either through litigation
or settlement -the asbestos-related personal injury and death
claims of a non-opt-out class of persons who have neither filed
nor settled such claims before August 17, 1993. The unsettled
present cases against Fibreboard would also be identified, and
an additional amount -not as of then determined -would be
budgeted to resolve them. It was anticipated that to the extent
the unsettled present cases could be resolved for less than the
budgeted amount, 80% of the difference would be transferred
to the Trust. Fibreboard Exh. 592.
180. In addition, Fibreboard would assign to
the Trust any and all claims for contribution and indemnity it
might have against other joint tortfeasors arising out of certain
asbestos-related personal injury claims. Fibreboard would also
be responsible for the intake administration of claims for five
years, and would be required to provide the Trust with all
information including information that would otherwise be
protected by privilege or trade secret confidentiality -- as is
reasonably necessary for the Trust to evaluate, defend and
resolve the claims against it. The Insurers would be responsible
for the costs associated with obtaining court approval of the
Global Settlement, as well as any fees of Plaintiffs’ Counsel that
might be awarded by this Court up to a maximum of 3% of the
2°The Global Settlement would be subject to final court approval.
Upon such approval, the original amount in the escrow account, plus any
accrued interest thereon, would be transferred into a settlement trust (the
“Trust”). Should the Global Settlement fail to receive final court approval, the
principal and interest in the escrow account would revert to the Insurers.
Fibreboard Exh. 592.
300a
were described to this Court on September 9.” Tr. at 1487.
Plaintiffs’ Counsel then filed the complaint in this action later
that day. Papers seeking provisional certification of the plaintiff
class in this action (the Global Health Claimant Class) and a
temporary restraining order against the filing of additional claims
against Fibreboard or the Insurers were also filed. Tr. at 1487;
Complaint, Dkt. No. 1 (Sept. 9, 1993); Motion for Preliminary
Injunction and Temporary Restraining Order, Dkt. No. 7 (Sept.
9, 1993); Joint Motion for Provisional Class Certification, Dkt.
No. 12 (Sept. 9, 1993). This Court thereafter granted the
motions for provisional class certification and for a temporary
restraining order. Order Granting Motion for Class Certification,
Dkt. No. 16 (Sept. 9, 1993); Temporary Restraining Order, Dkt.
No. 11 (Sept. 9, 1993).”
186. Fibreboard and the Insurers thereafter
turned to formally documenting the Trilateral Settlement.
During this period of time, Plaintiffs’ Counsel did not engage in
any negotiations of the terms of the Global Settlement.
Lengthy, hard-fought, arm’s-length negotiations toward that end
finally resulted in the signing of the Settlement Agreement (the
?\The amendments to the April 9 Agreement were ultimately
memorialized in a document entitled “Supplemental Agreement,” which was
executed on October 12, 1993. Tr. at 1488.
20m September 16, 1993, this Court granted the Insurers’ motion
seeking an extension of the temporary restraining order. Order Granting Motion
to Extend Time of TRO, Dkt. No. 19 (Sept. 16, 1993). On September 27, 1993,
this Court held a hearing on the Insurers’ motion for a preliminary injunction
enjoining, the Global Health Claimant Class from commencing litigation against
Fibreboard or the Insurers. Continental Exh. 17. On September 28, 1993, this
Court granted the motion for a preliminary injunction. Preliminary Injunction,
Dkt. No. 29 (Sept. 28, 1993).
Wla
“Trilateral Settlement Agreement”) on October 12, 1993. Tr.
at 336-38, 1482-88; Fibreboard Exh. 910. On that same day, an
amended Continental-Pacific agreement was also signed setting
forth the details of the Insurers’ sharing arrangements,
Continental Exh. 21, as was the Supplemental Agreement. Tr.
at 1488.
187. Following the signing of the Trilateral
Settlement Agreement, Plaintiffs’ Counsel and representatives
of Fibreboard and the Insurers turned to the negotiation and
drafting of a written agreement reflecting the Global Settlement.
Although the terms of the global settlement in principle had
been put on the record on August 27, 1993, hundreds of
detailed provisions that are contained in the fully documented
agreement remained to be and were negotiated over a two-
month period commencing in mid-October 1993. In additions,
the “Third-Party Claimant Class Settlement” was negotiated
during this time period. Tr. at 402-03, 1489, 1496-97.
188. The negotiations on the written global
agreement were, for the most part, a slow and very contentious
process, during which disagreements with regard to a number of
significant issues arose. Tr. at 411, 1489. In particular, there
were disputes among the parties regarding, inter alia: (i) the
scope of the claims against the Insurers that would be
extinguished by the global agreement, as to which the Insurers’
position was that the Fibreboard insurance policies would be
disposed of and the Insurers would thereby receive “total
peace”, (ii) the meaning of the term “total peace” itself, which
term had been used by counsel for the Insurers when the parties
Originally announced the global agreement in principle in open
court on August 27, 1993; (iii) which party or parties were to
302a
bear the risk of liability for claims that for some reason could
not be extinguished; (iv) the indemnity obligations of Fibreboard
and of the Trust to be created as part of the Global Settlement;
(v) the process for amending the global agreement in the future;
(vi) how to resolve issues related to claims asserted by Plant
Insulation Company; and (vii) the operation of the Trust,
including investment restrictions and spendthrift provisions. Tr.
at 1489-96.
189. The formal documentation of the Global
Settlement (the “Global Settlement Agreement”), as well as the
Third-Party Claimant Class Settlement (entitled “Defendant
Class Settlement Agreement and now referred to as the
“ThirdParty Claimant Class Settlement Agreement”), were
finalized, including the signatures of all the parties thereto, on
December 23, 1993. Tr. at 1496-97; Fibreboard Exh. 912.
Vi. KEY SETTLEMENT TERMS”
190. The Global Settlement Agreement and
the Trilateral Settlement Agreement each operate to settle the
Coverage Case and to extinguish all liability of the Insurers
under or in connection with the policies. The two agreements
operate, however, to create very different procedures for
Because it is necessary to do so in order to explain the settlements
under consideration, the Court has summarized various por... s of the detailed
agreements before it. There is no dispute before the Court about the meaning or
intended operation of the language of these agreements, and these provisions are
not before the Court for judicial construction. The Court does not intend any
portion of these findings, including the summaries of the agreements which
appear throughout, to be preclusive if disputes about the meaning or operation
of these agreements should arise.
.
an - P - -
303a
handling the proceeds from the settlement of the Coverage
Case, with very different likely economic effects on the class
members. Fibreboard Exhs. 910, 912.
A. The Global Settlement
191. The Global Settlement Agreement -which
is subject to court approval - provides a structure for the
handling of the proceeds of the Coverage Case settlement and
the additional funds to be contributed by Fibreboard. The
intentions of the parties to the Global Settlement Agreement
(the “Settling Parties”) in creating the procedure for handling
the Coverage Case settlement proceeds are patent on the face of
the Global Settlement Agreement. They are: (i) to resolve
finally all asbestos-related personal injury claims of the Global
Health Claimant Class against Fibreboard and the Insurers, and
to direct such claims to the Trust; (ii) to provide for a simple,
efficient process by which persons who were injured through
exposure to Fibreboard asbestos could quickly obtain a fair
settlement or resolution of their claims while safeguarding the
claimants’ rights to proceed against the Trust in the tort system;
(iii) to enhance the likelihood that assets would remain available
to injured class members whose claims develop far in the future
by limiting how much of the Trust’s assets can be paid in any
given year, (iv) to prioritize payments so that in the event of any
shortfall the sickest claimants are paid first; and (v) to protect
the Trust’s assets from unduly risky investments. Tr. at 1493-
96, 1521-24; Fibreboard Exh. 912 (Global Settlement
Agreement).
192. The Global Settlement Agreement settles
all claims for asbestos-related personal injury or death against
306a
contain each and every one of certain specified provisions.
These additional requirements are that the judgment must:
declare with respect to the claims of both the
Global Health Claimant Class and Global Third-
Party Claimant Class that the settlement is fair,
reasonable and adequate and was entered into in
good faith; that the members of both classes
have received adequaie notice of the settlement;
and that Global Health Claimant Class members
have been adequately, professionally and
ethically represented by class counsel; --approve
the releases and indemnities contained in the
Global Settlement Agreement, and the
provisions in the Global Settlement Agreement
and TDP for the resolution of the Global Third-
Party Claims; --permanently enjoin Fibreboard
from asserting against Continental or Pacific any
claim released or discharged under the Global
Settlement Agreement, and permanently enjoin
any Global Health Claimant Class member or
Global Third-Party Claimant Class member from
asserting against Fibreboard, Continental, or
Pacific any claim released or discharged under
the Global Settlement Agreement, --discharge
Fibreboard, Continental and Pacific from any
further liability with respect to any Global Health
Claimant Class Member Claim” or Global
?5The formal definition of the “Global Health Claimant Class Member
Claim” is set forth in the Glossary to the Global Settlement Agreement,
(continued...)
307a
: Third-Party Claim; declare to be fair, reasonable
and non-collusive the provision in the Global
Settlement Agreement under which Fibreboard
and the Insurers agree that the Insurers shall be
discharged from any further obligation under or
in connection with the policies, except as
specifically assumed or preserved under the
various settlement agreements between them; --
declare that only payments of funds pursuant to
a Global Health Claimant Class member’s
individual settlement with the Trust, and not
entry into or final approval of the Global
Settlement Agreement, shall trigger the notice,
approval and forfeiture provisions on the
Longshore and Harbor Workers Compensation
Act and any similar provisions of state and
federal workers’ compensation laws;--order all
Global Health Claimant Class Member Claims,
except for punitive or exemplary damages,
which are not allowed and will be barred,
directed to the Trust for disposition pursuant to
the Trust Agreement and TDP;--order the
parties to implement the Global Settlement
Agreement; --order dismissal of this action,
including all of the Global Health Claimant Class
Member Claims (including all punitive and
: exemplary damage claims) against Fibreboard,
! Continental and Pacific, on the merits, with
; prejudice to reassertion and without costs; --
ET eg yt cae eee ea ee
25( continued)
Fibreboard Exh. 912 (Exh. A), under the term “Class Member Claim.”
308a
determine and award the fees and expenses of
counsel appointed to represent the clas
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