Key to OC bankruptcy exit

10/22/2006

Over dinner in Chicago last week, a retired judge there, a longtime asbestos-injury lawyer, and a member of the team that prosecuted a German terrorist cell involved in the 9/11 attacks worked to finalize details of a plan that is crucial to Owens Corning's future.

The trio - lawyers Dean M. Trafelet, D. LeAnne Jackson, and Harry Huge - will oversee the Owens Corning/Fibreboard personal injury trust.

With an expected $5 billion in cash and stock, it will be bigger than many corporations.

The trust will absorb OC's multibillion-dollar asbestos liability and, once and for all, will free the Toledo building products maker from crushing debt that forced it into Chapter 11 bankruptcy in October, 2000.

Establishment of the trust, which essentially is a pool of money, is vital to the company's plan to emerge from bankruptcy at the end of this month.

Most important, the trust will be responsible for compensating hundreds of thousands of asbestos-injury victims, many of them suffering from fatal lung diseases.

"There is a great deal more to do and I anticipate a lot of work," Mr. Trafelet, 64, the trust's managing trustee, told The Blade as he prepared to leave for a meeting with his fellow trustees. "We have experienced people on board and we are interviewing experienced professionals to help us."

Such trusts have long been deemed by corporate America as the ultimate solution to asbestos liability problems, providing companies an out when they are no longer able to continue paying claims.

Although the solution is less expensive than the court system where tens of thousands of claims have been resolved over the past 30 years, it is not cost-free. Such trusts must pay dozens of outside lawyers, claims-processing agents, and financial advisers.

The OC trust will pay each of the three part-time trustees $60,000 to $75,000 annually, plus thousands of dollars more for each meeting they have.

Asbestos victims will receive a fraction of the actual worth of their claims. The OC/Fibreboard trust will pay between 25 cents and 40 cents on the dollar. Claimants who are not sick and who have not been diagnosed with significant illnesses will receive as little as $240.

The trust will be among the richest established by former asbestos producers. "It's pretty large," said Joe Householder, a spokesman for a Washington coalition of asbestos trusts. The five trusts he represents have combined assets of $8 billion.

The OC trust likely will have offices in Delaware, where bankruptcy judges will oversee it, lawyers said. The staff, with as few as three members, will depend heavily on outside consultants, who will be paid by the trust.

Trustees want to begin operation Nov. 1, a day or two after OC expects to emerge from Chapter 11. The trust will be independent of OC, and company officials and major investors aren't permitted to serve as trustees.

The Toledo company initially will give the trust $1.3 billion to cover claims from people made sick by exposure to asbestos pipe insulation it made until 1972, plus another $1.3 billion for claims involving OC's Fibreboard subsidiary.

Early next year, OC is expected to kick in a final $1.5 billion in cash, plus 26.9 million shares of its stock, representing 20 percent of all shares. In total, the funding amounts to $5 billion.

But demands on the OC trust will be great.

A federal judge, relying on experts, estimated that OC claims alone, not including the subsidiary company, will be $7 billion.

The trust faces an estimated 200,000 current claims, with predictions of up to 650,000 additional claims through the end of the first half of the 21st century. The firm settled tens of thousands of claims before it entered Chapter 11. By 1998, it was spending $250 million a year on settlements and legal expenses.

Because monetary demands are expected to exceed the OC/Fibreboard trust's ability to pay, the amounts that claimants will recover represent 40 cents on the dollar for OC claims and 25 cents on the dollar for those involving the firm's Fibreboard subsidiary.

The trust could adjust those percentages every three years, based on the number of claims and funds remaining.

OC bought Fibreboard just three years before entering Chapter 11. The Toledo company and its creditors have allotted less of the fund for the subsidiary's claims, necessitating smaller payments to its claimants.

In either case, the largest payments will go to people with a deadly lung cancer known as mesothelioma. OC claimants who have strong medical evidence and can prove they worked with the company's products will get $215,000. Fibreboard claimants will receive $135,000.

The least severe claims will be paid $400 in OC cases and $240 in Fibreboard cases.

Cases in which evidence is less clear-cut or in which claimants believe their case involves special circumstances that warrant higher payments can seek individualized reviews.

When a claimant disputes an award, outside mediators will be called in at the trust's expense. Claimants who disagree with those findings can sue. But any jury or judicial award will be paid 40 cents on the dollar in OC cases and 25 cents on the dollar in Fibreboard cases, in keeping with the partial payment terms set up under the bankruptcy.

Few claimants are expected to choose that route, said Cleveland lawyer James McMonagle, a trust adviser who will represent the interests of future asbestos claimants.

"In the history of other trusts, very few go to the courts," he added.

In general, claims will be paid in the order they are submitted. Exceptions will be made for "hardship cases" in which the claimant is seriously ill and in need of money, according to documents in OC's bankruptcy case.

Typically, asbestos victims work around the products of many different companies, and are able to collect from each of them, according to experts in the field.

But in situations where the disease resulted from claimants' employment in an OC factory or where they worked almost exclusively around the company's products, they will be eligible for much larger payments: up to $1.1 million.

Lawyers plan to first pay claims that OC settled, but never paid, before it filed for Chapter 11 six years ago.

One other provision could affect how quickly claimants receive payment, however. Trust planners stipulated that 65 percent of payments in any year go to people with cancer or other serious diseases.

Trustees expect to meet weekly initially, but probably will assemble quarterly or every other month once the trust becomes established, Mr. Trafelet said.

He is a retired Illinois Circuit Court judge and had represented Vietnam veterans exposed to Agent Orange, a cancer-causing defoliant used by the U.S. military to clear jungle cover used by enemy soldiers.

Neither of the other two trustees responded to requests for comment.

But the Web site of Baron & Budd PC, a prominent asbestos-liability firm in Dallas, lists Ms. Jackson as a shareholder of the practice and former jurisdictional manager for asbestos litigation. A staff member there said she has left the firm but was unable to provide more information.

Mr. Huge (pronounced Hew-gee) represents 4,000 families of Sept. 11, 2001, victims in a lawsuit in New York and helped prosecute the Hamburg terrorist cell involved in the attack.

He is a former chairman of the United Mine Workers health and retirement fund and was a special master in U.S. District Court in Washington in a case involving the crash of an Air Force plane carrying Vietnamese orphans at the end of the war there, according to information distributed by Nebraska Wesleyan University. He is an alumnus and benefactor of the college, where a dormitory is named for him and his wife, Reba.

Advising the trust is a nine-member committee that will consist of lawyers with close ties to the nation's leading asbestos-injury firms.

The group includes Miami attorney James Ferraro, whose Web site boasts that he won the largest award for actual asbestos damages in Florida history when his clients received $6.5 million in a 1995 OC case.

Additionally, there is Joseph Rice, of Motley Rice LLC. His legal partner and co-founder of the South Carolina firm was so successful in suing OC that he once named a pet dog Kaylo, for the company's asbestos-containing insulation.

Mr. Rice helped craft a muti-

billion-dollar settlement that re

imbursed states for the health effects of smoking, according to the law firm's Web site.

Remaining members of the advisory committee are Russell Budd, of Baron and Budd in Dallas; John Cooney, Chicago; Matthew Bergman, Seattle; Steven Kazan, Oakland, Calif.; Theodore Goldberg, Pittsburgh; Armand Volta, Jr., Baltimore, and Perry Weitz, New York.

Contact Gary T. Pakulski at: gpakulski@theblade.com or 419-724-6082.