Grace Bets On Winning Asbestos Lawsuits
Monday, January 28, 2008
A century-and-a-half-old chemical company in Columbia is betting its future on an unusual legal strategy that might be called Grace's Last Stand.
Over the years, industrial companies have agreed to pay tens of billions of dollars to resolve asbestos lawsuits filed on behalf of workers who said they used products that caused cancer or lung damage.
W.R. Grace followed the same tack for a while. But pushed into bankruptcy, it now is trying the novel approach of asking a bankruptcy judge to declare many of the roughly 100,000 claims it faces to be invalid.
The company is making the request as part of its effort to emerge from bankruptcy. In order for Grace to exit bankruptcy, the judge must rule on what liabilities the company faces, and that means deciding how many of the claims are valid and what they might total. The judge's decision does not resolve the individual claims, but it could set a standard for further litigation.
The trial started two weeks ago, and already Judge Judith Fitzgerald has allowed the company to introduce testimony purporting to show that diseases were over-diagnosed in many cases.
"This case and this trial present the first opportunity for a federal court to set a standard on the basis of which the tens of thousands of asbestos claims that are being pursued can be resolved based upon their merit," said David Bernick, a lawyer representing Grace who has a long history defending companies against similar lawsuits.
Grace's move is risky. The judge's decision could mean the difference between whether the company continues -- or watches shareholder value evaporate and its ownership shift to the asbestos claimants. Grace acknowledges it is responsible for around $500 million in claims. The plaintiffs want up to $6 billion, several multiples of the company's market value. Both sides expect the judge to rule in early May.
Opposing lawyers say Grace's move is flawed because it looks to break with more than a decade of tradition in which state courts with juries have settled such lawsuits on a case-by-case basis.
"I don't think anybody would dispute that a personal injury claimant would be entitled to a jury trial," said lawyer Roger Frankel. "That's being done away with this approach. And you can do that if you get the consent of the claimants. But you can't do that over their objection."
Frankel works for a court-appointed official who represents future asbestos claimants. Calls to lawyers representing current claimants were not returned.
Throughout the case, Grace's stock price has held up. Though way off highs in the late 1990s, the company's stock is up several hundred percent in the past few years. It closed Friday at $20.64.
The company, which employs 6,400 people worldwide, manufactures chemicals and construction materials. The asbestos at issue was used in fireproofing and insulation products.
Asbestos lawsuits have been a prominent battleground for the competing claims of trial lawyers and corporations over the years, a debate that has played out over weight loss pills, tobacco, silicon breast implants and other products.
Richard A. Nagareda, a mass-torts expert at Vanderbilt University Law School, said such disputes typically end with a settlement. Grace's approach "is a whole change of strategy."
Critics argue that asbestos suits increasingly have featured suspect medical evidence.
"This could be the first time in more than 80 asbestos-related bankruptcies where a court will allow the company to try to prove that thousands of pending claims are bogus and not legitimate," said Lester Brickman, a Cardozo Law School professor at Yeshiva University.
Brickman said that lawyers representing potential claimants often organize mass screenings for people who have been exposed to asbestos. But those screenings, he said, document much higher rates of lung damage than those done in clinical settings.
Frankel challenged that view, saying that it is cancer, not lung damage, that brings most claimants to court. Cancer diagnoses are not as susceptible to abuse because they require more extensive and individualized tests.