A peace settlement in the legal war over asbestos is the goal of U.S. District Court Judge Jack B. Weinstein.

In a dramatic hearing in Brooklyn last Monday where hundreds of lawyers representing thousands of asbestos victims gathered, Weinstein signaled that if the parties involved can't negotiate a truce, he will impose his own version.

Weinstein's ultimatum marked a new crisis in the protracted struggle to compensate these victims -- thousands of shipyard employees, industrial workers and others who contracted crippling and often-fatal lung diseases from contact with asbestos fibers as far back as the 1940s.

And it was, as well, a rebuke to many in the legion of lawyers whose stratagems have largely written the script for the asbestos saga. Lawyers forced the asbestos issue into the courts in the first place; other lawyers fashioned a trust fund to pay the victims; and, in the latest twist, lawyers have brought a new wave of cases that have all but pumped the fund dry.

The focal point of the dispute is Denver-based Manville Corp., which, until it abandoned the business in 1985, was the largest manufacturer of asbestos insulation products in the country. More than 130,000 asbestos victims or their survivors are lined up awaiting compensation from Manville -- a prospect that prompted the company to put itself into bankruptcy court in 1982 to seek a negotiated truce with the claimants.

In an unheard of social and legal experiment that was the result of years of negotiations, an agreement was reached to set up the Manville Personal Injury Settlement Trust, a $3 billion fund -- much of it in stocks and bonds of the company -- to handle asbestos claims against the company. At the time, it seemed a small miracle of compromise and craftsmanship.

But something went wrong. Instead of resolving the dispute, the agreement merely ushered in a new round of lawsuits. A combination of initial claims and legal costs have exhausted the fund, leaving remaining victims with no hope of payment for decades.

The severe cash shortage in the trust constitutes a "judicial emergency," said Weinstein, who is overseeing more than 500 cases of asbestos-related injuries that occurred in the Brooklyn Navy Yard. On Monday, Weinstein ordered that settlements, judgments and legal fees paid by the trust be frozen until Aug. 6. During that time, the trust is to be restructured so that sufficient funds will be available for victims, and payment schedules are to be developed.

In addition, Weinstein took the first step toward consolidating the tens of thousands of cases against Manville and other former manufacturers of asbestos that are now littering the dockets of courts around the country into one class-action suit.

The trust's assets are earmarked for the victims and their families, said the judge, adding that "huge expenditures for legal fees and court time" must be eliminated.

Others agree that the fees for attorneys representing asbestos victims have been far too high.

"It's clear that there's too much money going to the attorneys," said one attorney close to the case. "There's not much controversy about that... . There's no question about the liability {of the company}. Paralegals do all the paperwork. Why should the lawyers get all the money?"

In the cases processed thus far by the Manville trust, experts estimate that legal fees have accounted for 30 percent to 40 percent of the awards -- or between $218 million and $374 million.

While there are tens of thousands of claims involving asbestos, the majority of the cases have been handled by about 20 firms that specialize in product-liability law. Critics of high legal fees say that the processing of the claims is a relatively simple procedure that takes little time or legal skill. Yet, because product-liability lawyers get paid on a contingent-fee basis, they typically get at least one-third of the total settlement.

Some involved in the case say it is unfair to tar the lawyers as the culprits. Some of the initial lawsuits that established Manville's liability were extremely complex and risky, since the lawyers had no way of knowing whether they would find the evidence in Manville's files that would persuade a jury the company had done wrong.

"Most of the lawyers who got fees on the first round of settlements earned their money," said Richard F. Scruggs, an attorney who represents 4,000 shipyard workers along the Gulf coast. "It took them 10 years and they worked their fannies off to bring Manville to heel. But once the {trust} was in operation, a lawyer who only had to file a piece of paper to get money should not get the same amount."

Another source close to the case said that even if lawyers didn't get a penny, it wouldn't change the bottom line: "There are too many cases with too many plaintiffs expecting too much money," he said.

Judge Weinstein, worried that some of those plaintiffs may get nothing unless the trust is restructured and a new payment plan devised, has essentially threatened to take matters into his own hands.

Unlike some liability cases, where the danger of a product may be debatable, asbestos has been shown to cause several perilous diseases, including lung cancer and asbestosis, whose symptoms may not appear for decades after exposure. As many as 1 million workers are believed to have been exposed to the white, flaky material, produced by Manville and other manufacturers.

The Manville trust was set up as a clearinghouse to settle the claims of that company's workers, not to litigate them. However, in cases where claimants reject the trust's settlement offer, going to court is one of the alternatives.

The trust had settled more than 22,000 cases for about $935.4 million as of March 31, but only $618 million of that total has been paid out.

The trust has an additional 130,000 claims waiting to be processed. Many of those workers have filed suits in state and federal courts. And attorneys project that there will be an eventual total of at least 150,000 claims against the trust. With each claimant getting an average settlement of $40,000, that means the trust would ultimately pay out about $6 billion. As of March 31, the trust had $219.5 million available in cash.

According to sources close to the case, the judge's order was a terrible embarrassment to two of the major players in the long history of the asbestos battle: Leon Silverman, one of the architects of the trust's settlement plan, and Judge Burton R. Lifland, who has overseen the Manville bankruptcy plan that included the establishment of the trust.

Weinstein sent Silverman, best known as the attorney who defended stock speculator Ivan Boesky in his securities fraud case, back to the drawing board to come up with a restructuring of the trust by Aug. 6.

Silverman, along with representatives of the company and of the trust, which is legally separate from the company, were meeting with investment bankers and financial advisers in New York last week to come up with a plan acceptable to the court.

There are those who say that Silverman, who was originally appointed by Lifland in the early 1980s to represent the interests of future asbestos claimants -- those who had been exposed to asbestos but who, at that time, had no symptoms of disease -- is one of the highest paid attorneys in the case. Lifland awarded Silverman $5 million -- double the fees he billed -- for his work in setting up the trust.

"The real travesty is Silverman," said Scruggs. "He's just a crony of the judge. The judge threw him this bone. That's $5 million more than {the plaintiffs} he was supposed to represent got."

Silverman declined to comment on Weinstein's order or on criticisms of his role in the case. "It is clear that the trust cannot generate sufficient funds in a timely fashion to pay all of the victims" as it is currently structured, he said in court on Monday.

But there are those who say the trust would not be in its present precarious financial situation if it had been set up differently.

Most of the criticisms of the trust are of the way it paid the claims of the first victims. Those who filed their cases first were the first paid, without regard to the severity of their illnesses and without a reserve fund for future cases, critics said. In addition, the average settlement of $40,000 per case was far too high, they said.

"They should have done it on the installment plan," said Scruggs. "That's why they're in position they're in now."

Scruggs and others point the finger at the trustees and the executive director of the Washington-based trust, Marianna S. Smith, for adopting such a payment plan.

Said Smith of the way the plan paid out money: "I don't know if it's a mistake or not. But the very people who are criticizing it are the people who voted for it" when the trust was formed.

"The fact that a plan is not working out as well as hoped ... does not mean that the people who have made the hard decisions {the trustees} have done anything wrong," she said.

Judge Weinstein has made it clear in his order that Manville Corp. also must play a role in working out the trust's problems. The trust, which owns 80 percent of the company's stock and a Manville bond worth $1.8 billion, is now restricted in its ability to sell the stock.

Tom Stephens, chairman and chief executive officer of Manville Corp., said last week that he fully supports Judge Weinstein's efforts to refinance the trust. However, Manville executives and directors worry about the "golden goose" theory. Anything that hurts the company, the trust's golden goose, ultimately hurts the trust as well, since it gets all of its money from the company.

"We've always believed we need to help the trust create an orderly market for the stock," he said. "But it has to be sold over time. You don't go out and dump your shares and destroy that market."

Whatever happens on Aug. 6, Judge Weinstein, an activist judge who oversaw the Agent Orange product-liability case, is not likely to stand idly by while asbestos victims get nothing.

"It's a trial balloon inviting the parties to work out the problem themselves," said Kenneth R. Feinberg, a special master appointed by Weinstein in the Brooklyn Navy Yard asbestos cases. "If they fail, he's willing to take it over himself."