With payouts both speedier and higher than expected, an ambitious ADK claims facility for asbestos per- sonal-injury cases is running short of funds, and facility officials are ex- ploring a variety of options for infus- ing more cash into the operation.

The facility, called the Manville Personal Injury Settlement Trust, had resolved nearly 13,000 cases at an average of about $38,000 per claim from its inception in early 1989 through mid-summer, according to court papers filed in late October. Though the trust has sizable funds, this quick and large outflow of money has raised concerns that scores of thousands of other asbestos claimants may have to wait decades for settlements and that other as- bestos makers-co-defendants with Manville in many of these suits- may have to make u p a possible shortfall.

Funds Are Growing Scarce at Manville Trust The trust is a main plank in the

bankruptcy reorganization plan of the hlanville Corp. The former as- bestos maker, the nation’s largest, entered bankruptcy in 1982 ;is a re- sult of the deluge of asbestos cases filed against it by plaintiffs claiming to have contracted lung cancer, as- bestosis, mesothelioma and other ill- nesses from the insulating and fire- proofing material. Past and future cases against the trust may reach up- wards of 200,000, some observers es- timate.

Under the bankruptcy plan, made final in late 1988, the trust was en- dowed with hundreds of millions of dollars from M;inville and its insur- ers, as well as with a majority of Man- ville stock. T h e trust, which expected at the start to pay out $2.5 billion over the next 26 years, is of the “evergreen” variety, with spent funds replaced periodically by

profit-taking from stock, stock sales, and the like.

Moreover, the innovative trust features an elaborate ADK system to spur out-of-court settlements in the thousands of asbestos suits it would handle. Under that system, subse- quent to an initial negotiation period with claimants, the trust offers them a host of binding arid nonbinding ADR procedures, to be conducted through a nationwide network of 27 rosters of neutrals. (For more on the plan and its ADR components, see ,4lternative.s, December 1988.) The bankruptcy plan set up a similar trust for the asbestos property dam- age suits that Manville faces. (Alter- natiues, November 1989.)

But shortly after the innovative per- sonal injury trust began operation early in 1989, there were some con- cerns that the settlement payouts (continued on following page)

Agency Sets Up Mediator List (continued jrom jront p a p ) programs, “FmHA wished to pro- vide an opportunity for farmer-cred- itor mediation in all States and ter- ritories,” the agency explained in a document about its new national ros- ter. “We want to assess the resources available for mediation in all States and develop a strong system to offer mediation of agricultural-credit dis- putes wherever FmHA or other Federal lending or loan guarantee programs are involved. Mediation can play a major role in developing and exploring options to help re- solve agricultural-credit disputes in which difficult financial, family and emotional issues are strongly inter- twined.”

T o create its nationwide mediator roster, FmHA contracted with an ADR group named The Conflict Clinic Inc. of Fairfax, Va., and Ken- drick and Co. of Washington, D.C. to conduct a survey of individuals and organizations able and willing to me- diate farm-loan cases. The resulting roster is “descriptive” only, FmHA

emphasizes. Inclusion of a mediator thereon does not constitute FmHA approval or certification; it is “simply a statement of interest arid avail- ability. . . .”

FmHA directors in the 36 states without FmHA-approved mediation programs will then use the resulting list-which they received this fall- to select mediators with whom to contract for federal farm-loan dis- putes.

FmHA suggests that its state direc- tors are more likely to choose the larger providers of mediation ser- vices from the roster. While smaller providers should apply, the agency says, FmHA state directors “in most cases will seek to contract with a sin- gle agency or individual to provide as much of the mediation services as possible within hidher state or multi- state jurisdiction.”

Generally, the mediations will tie voluntary for borrowers and any non-federal lenders.

The FmHA survey sets out ;I list of desired qualities for its mediators.

They include experience in multi- party disputes, forty hours of medi- ator training, and some training in the technicalities of agricultural- credit disputes. Mediators should also have “the professional and ad- ministrative capability” to contact parties and apprise them of the nature of mediation, establish ground rules, select or provide a me- diation site, and the like.

The survey questionnaire elicits information about these qualifica- tions as well as about rates charged, state or region where available, size of organization, specific mediation experience in farm-loan cases, and other matters.

Mediators will be used in cases in which “an agricultural loan made or guaranteed by FmHA or another federal lender or guarantor is in de- fault or delinquent and existing debt restructuring programs alone can- not produce a projected cash-flow sufficient to relieve the default and provide a reaonable expectation of timely maintenance of the loan,” says the FmHA document.

The FmHA roster will be in ef- fect through September 1991.

214 Alternatives Vol. 7, N o 12 Dcc-erril)er 1989

Asbestos Trust (contznued from previous page)

were quicker and larger than antici- pated, and that the trust might have cash flow problems. (Alternatzves, March 1989.)

The issue resurfaced in late Oc- tober, in papers filed in bankruptcy court in New York City. Those pa- pers, part of which were notes made this summer by trust officials, sug- gest that fund depletion has been substantial. According to an account in the New York Times, court docu- ments show that by mid-August the trust had paid out $515 million for the approximately 13,000 settled claims, and that “a June financial statement indicates [the trust] has another $136 million in settled but unpaid claims.” In addition, operat- ing expenses from January to June 1989 reached $13 million.

The start-up funds for the trust totaled about $685 million, most from insurers and some from Man- ville, the paper also reported.

The size and speed of trust pay- ments during the first several months raised the possibility that even claimants who file by the end of the year may have to wait 25 years for compensation. T h e spectre of such eventualities has led to tension and some controversy over whether settlements are too high and other issues involving other former as- bestos makers, plaintiffs and their at- torneys, and others.

These developments have led trust officials to discuss with financial experts several possible solutions to the cash crunch. Marianna T. Smith, executive director of the trust, said a variety of ideas for generating cash would soon be evaluated. According to news reports, the options include the sale of Manville by the trust, which is the company’s majority shareholder; the sale of some parts of the company; or recapitalization of the company’s stock. In addition, Manville Corp., proffering another cash-raising idea, offered to buy $500 million of its preferred stock held by the trust, according to a Times report.

Meanwhile.. . As asbestos cases have widened from a trickle to a flood in the past decade, courts, companies and claimants have tried a variety of in-court and out-of-court ADR and case-management techniques. The case crunch has spurred a lively process of experimenting, tinkering with procedures, gathering data, and refining dispute-resolution ap- proaches-often simultaneously.

I t was true to form, then, that just as the Manville asbestos PI trust was trying to adapt to its changing circumstances, some others caught in the asbestos deluge were fashioning new ways ways to resolve their cases.

In that other arena, Maryland Circuit Court Judge Marshall A. Levin of Baltimore has appointed a special settlement master to spur resolu- tions to the 4,000 asbestos cases in his court. The city has such a heavy docket because it is the site of shipbuilding and other industries that long had used asbestos.

The designated inaster is Kenneth R. Feinberg of the Washington, D.C. office of Kaye, Scholer, Fiernian, Hays & Handler, a sustaining member of the CPR Legal Program. Mr. Feinberg, a CPR National Panelist, has served as a mediator, special master, and in other ADR neutral capacities in a number of large suits, including the Agent Orange, Dalkon Shield and LILCO matters. (See “Three Compressed- Gas Firms Use CPR Mediation Model,”AEternatives, August 1986, for an example of Mr. Feinberg’s work.)

Pursuant to his appointment by Judge Levin, MI-. Feinberg has been meeting in Baltimore this summer and fall with the 85 or so defendant corporations and the attorney representing most of the plaintiffs. His goal, according to a late October New York Times account, is to help the parties fashion a schedule or formula for assessing case settlement amounts by kind of injury, age of the plaintiff, and other factors.

Procedurally, Mr. Feinberg expects that the main plaintiff lawyer and one or a few company defendants will exchange information, and then use this data to negotiate a schedule of settlement amounts, according to the paper. T h e claims of the more seriously ill plaintiffs will be handled first.

Roughly, the process is similar to the one used in the Dalkon Shield cases.

Mr. Feinberg also hopes to persuade the parties to agree to use mediation or nonbinding arbitration for the many future cases certain to be filed by the parties, according to the report.

Whatever the seriousness of the uation. trust’s cash-flow problems, a speedy resolution is desirable for two rea- sons other than the obvious ones. First, a lessening of confidence among Manville asbestos claimants may lead them to prefer a lawsuit- as is their prerogative-over ap- plication to the trust. If this happens, the trust’s litigation costs will bal- loon, further worsening the cash sit-

Second, the trust’s funding prob- lems raise in investors the fear that Manville may petition again for bankruptcy protection. That con- cern depresses the price of Manville stock, a swing that will in large part hurt and limit the options of the trust, because it is Manville’s major- i ty stockholder.