Specialty Products, asbestos claimants $1.4 billion apart on estimation

By Jim Witters

Wilmington, Del., Feb. 7 - Specialty Products Holding Corp. and Bondex International Inc. estimate their current and future claims related to asbestos products to be about $160 million, while the claimants' representatives peg the number at $1.6 billion to $1.8 billion, according to documents filed Feb. 6 with the U.S Bankruptcy Court with the District of Delaware.

The claims stem from mesothelioma patients who claim their exposure to asbestos in the debtors' products caused their disease.

The debtors acquired the Reardon Co. in 1966. Reardon manufactured joint compound for the do-it-yourself market.

Bondex sold more than 10 million bags of the joint compound, which contained chrysotile asbestos, between 1960 and 1978 when distribution to retail outlets halted, according to court documents.

More than 40 million people could have been exposed to the Bondex joint compound, according to estimates.

The claims estimation is an essential element in the case, because the debtors' joint plan of reorganization calls for an asbestos trust to be established and to be funded with enough cash to pay in full all present and future asbestos-related claims and all expenses incurred by the asbestos trust, including professional fees.

Specialty Products and Bondex and their parent RPM International Inc. will provide the funding for the trust.

The court heard expert testimony from each side during a weeklong January trial in the U.S. Bankruptcy Court for the District of Western Pennsylvania.

The parties filed post-trial briefs on Feb. 6.

Closing statements are scheduled for 9 a.m. ET on March 4 in the U.S. Bankruptcy Court for the District of Western Pennsylvania.

Judge Judith K. Fitzgerald plans to issue a ruling by May 31.

Debtors' estimate

The debtors claim the chrysotile asbestos their product "is significantly less potent than other types of asbestos and ... there is substantial evidence that it does not cause mesothelioma at all."

The debtors' expert, Charles H. Mullin, analyzed the number of cases filed against the debtors, the number of settlements versus trials, the total costs associated with each type of case and the likelihood of new cases emerging.

Mullin holds a Ph.D. in economics from the University of Chicago and is employed with economic consulting firm Bates White.

Mullin concluded that the value of the pending mesothelioma claims was approximately $70 million and future claims could be $600 million, if the debtors had remained in the tort system.

But the bankruptcy case reduces the potential recovery for claimants, he said.

"Looking at the analysis in the aggregate, Mullin concluded that the portion of the pending mesothelioma claims and expected future mesothelioma claims that is related to the debtors' liability (as opposed to other factors) is $465 million nominal," according to the debtors' filing.

However, those claims likely would be settled for less, Mullin concluded.

He placed the true value of present and future mesothelioma claims at $160 million.

Using a variety of discount rates, the net present value of those claims is $110 million to $135 million, Mullin said.

Claimants' estimate

The official committee of asbestos personal injury claimants and the future claimants' representative say the claims estimate should be based on the potential liability the debtors would have faced had they not filed for bankruptcy.

"Through this bankruptcy proceeding, the debtors are attempting to accomplish what they could not achieve in the tort system - resolution of their pending and future asbestos liabilities at a fraction of what they had paid historically," according to the claimants' representatives.

The debtors' attempt to "shape their liabilities" and "create a fictionalized tort system" is "inconsistent with what this court has recognized as the proper way to estimate claims," the claimants say.

Although the debtors tried to limit their liability, "their asbestos-related liabilities continued to increase up until they filed for bankruptcy," according to the claimants.

"Prior to the petition date, the debtors were named in thousands of cases in the tort system and chose to settle as many as 5,000 mesothelioma cases. In the 10 years prior to the debtors' bankruptcy, the debtors agreed to pay over $420 million in indemnity payments," the filing says.

Evidence obtained during previous asbestos cases show that the debtors:

• Failed to disclose that their products contained asbestos;

• Never tested their products to determine whether they fell within acceptable levels of asbestos content;

• Continued to encourage the sale of its asbestos-containing products in advance of an anticipated ban;

• Initially elected not to reformulate the products to be asbestos-free; and

• Eliminated asbestos from the products "in just eight months as the ban was bearing down on the company."

"The mesothelioma claims against the debtors increased every year after 1998, with one minor exception in 2004, until the debtors filed for bankruptcy," the claimants say.

When cases went to trial, the depositions of company executives weighed heavily on jurors, according to court documents.

"Much of the most compelling testimony against the debtors came from the devastating admissions of their own corporate executives, which were presented by plaintiffs at trial through video depositions. The potential impact of the video depositions on juries was powerful, and the debtors knew it. These depositions exemplified the debtors' flagrant disregard for the health and welfare of the people who used their asbestos products," the claimants' filing says.

The existence of such video testimony reduces the debtors' likelihood of success in future cases, the claimants say.

The claimants' experts, Mark Peterson and Thomas Vasquez, place the estimate for existing and future claims at $1.6 billion to $1.84 billion, with a net present value of $1.1 billion to $1,255,000,000.

Peterson, a principal of Legal Analysis Systems, Inc., is a behavioral scientist with a Ph.D. in social psychology from UCLA and an attorney with a law degree from Harvard University. He serves as the expert for official committee of asbestos personal injury claimants.

Vasquez is a vice president at Analysis, Research & Planning Corp. He holds a Ph.D. in economics from Clark University. He is the expert witness for the future claimants' representative.

Specialty Products is a subsidiary of RMP International, a Medina, Ohio-based producer of specialty chemicals. The subsidiary filed for bankruptcy on May 31, 2010 under Chapter 11 case number 10-11780.

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