A group of creditors of the bankrupt Manville Corp. vowed yesterday to block the company's latest plan to compensate asbestos victims because it would provide up to $1 billion for the victims' lawyers.
The money, up to 40 percent of the proposed $2.5 billion settlement, would flow to 40 or 50 law firms, the creditors charged. The firms are representing the victims on what is known as a contingency basis, meaning that the lawyers get a fixed percentage of any judgment or settlement.
A lawyer for the creditors termed the fees an "outrageous" and "appalling" windfall for the lawyers, particularly because Manville's proposal would eliminate lengthy trials in favor of direct payments to asbestos victims. As a result, little, if any, work would be required of their lawyers, the creditors said.
"It really sticks in our craw," said John A. Jerome, whose committee of commercial creditors plans to file a lawsuit on Tuesday to overturn the lawyers' contingent-fee contracts with their clients. "These lawyers are going to be able to collect this money for doing little more than filing proofs of claim. They'll just have to show up at the door for their checks."
Jerome's chief objection is that, under Manville's new plan, the commercial creditors -- which include major banks such as Morgan Guaranty, Citicorp and Bank of America, as well as trading companies and bondholders -- will get less than full payment of what Manville owes them.
The company's new settlement plan, formally filed in federal bankruptcy court in New York yesterday, calls for Manville to set up a trust fund of between $2.5 billion and $3 billion to compensate the more than 30,000 victims of asbestos-related diseases, as well as asbestos victims who file claims in the future. The commercial creditors, however, are the lowest priority of claimants against the company, and thus contend that, if less money were going to contingent fees for the victims' lawyers, more funds would be available to pay off the banks, particularly the interest due them since Manville filed its original petition in August 1982.
"It's the money changers' revenge," said Ron Motley, a South Carolina lawyer who represents more than 5,000 asbestos victims and stands to become one of the chief beneficiaries of the Manville plan. "If the clients want to pay their lawyers, that's none of the banks' business."
Motley and other lawyers involved in the case agreed that, if the creditors continue to object, they have the power to delay, and possibly torpedo, the compensation plan. Under federal bankruptcy law, all classes of claimants usually must approve a settlement for it to take effect, although there are instances in which the bankruptcy judge can be asked to intervene and approve the plan.
"This certainly gums up the works," Motley said. "He [Jerome] is holding the victims' hostage to the banks' post-petition interest. . . . You're going to see a lot of angry victims."
Manville, a mining and forest-products company that is based in Denver, was once the country's biggest producer of asbestos products. It filed for bankruptcy after being hit with thousands of lawsuits from victims who were found to have cancer and other lung diseases after using the company's products.
Ever since the bankruptcy filing, there has been an acrimonious debate over the role of trial lawyers in these cases, with Manville lawyers accusing them of "an orgy of greed." Labor and victims' groups, meanwhile, have praised the lawyers for exposing the company's misconduct in marketing asbestos products it knew to be dangerous.
The contingent-fee contracts -- which guarantee the lawyers between 33 and 40 percent of a victim's award if they win, but nothing if they lose -- are the standard in personal-injury cases.
However, the creditors claim that the contingent fees are out of line in this case, because Manville's plan is designed to promote quick settlement of the asbestos cases by using panels of medical experts and arbitrators that won't require as much work by lawyers as trials.
They also cite a Manville estimate that up to 90 percent of the lawsuits filed against it were being handled by fewer than 50 law firms.
But lawyers for the asbestos victims called these figures yesterday "exaggerated" and misleading. Motley and others acknowledged that the asbestos lawyers could receive "hundreds of millions of dollars" in fees, but they said these would be spread out over a 30-year period and, in most cases, were entirely justified.
"I've got claims that were filed in 1977 that I've spent 1,000 hours of time on for which I haven't been paid anything," said Fred Baron, a Dallas lawyer who represents more than 2,000 victims. "These fees are not unreasonable. . . . This is being treated as some sort of a joke, like it was some big bonanza for plaintiff's lawyers. But he [Jerome] has completely twisted the facts around.
Asbestos victims "have a right to be represented by good counsel and they could only do that with contingent fees," Baron said. "Our clients don't have the ability to pay $250 an hour for some lawyer."
Still, Baron, Motley and other leading plaintiffs' lawyers recently offered to donate 25 percent of their fees to a so-called "Have a Heart" fund to promote medical research on asbestos and to make payments to victims barred by state laws from filing claims against asbestos companies.