Earlier this week I wrote about the Specialty Products Holding Corp. (“SPHC” or the “Debtor”) bankruptcy. My prior post looked at the SPHC’s business, the events leading to company’s bankruptcy and what SPHC sought to achieve by filing for bankruptcy. Simply stated, SPHC filed for bankruptcy in order control its costs arising from asbestos litigation.
Whereas my first post relied upon SPHC’s Declaration in Support of First Day Pleadings, this post will instead focus on SPHC’s Informational Brief of the Debtors (the “Informational Brief“). The Informational Brief is worth review for a couple of reasons. First, although chapter 11 debtors routinely file declarations in support of their first day bankruptcy filings, it is not often that a debtor files an “informational brief” that spells out the debtor’s view of pending litigation and how it intends to respond to such litigation during bankruptcy. The Informational Brief is also worth review as it outlines how the Debtor intends to bring their asbestos costs under control. A copy of the Informational Brief is available here.
Debtor’s Share of the Market
According to the Informational Brief, SPHC’s products represent only a fraction of the asbestos that was placed in the marketplace. SPHC sold products containing asbestos directly to consumers through local hardware stores. SPHC points out that the company did not sell to the commercial construction market and therefore “did not sell product by the pallet-load as many of the larger companies did.” See Informational Brief, at * 2. Many of SPHC’s products either did not contain asbestos at all, or contained small percentages of asbestos content. According to the Debtor, those products that did have asbestos, had an asbestos content ranging from three to seven percent (with one product having up to 15% of asbestos content). Id.
SPHC Claims to be “Newly Targeted” By Plaintiff’s Counsel
SPHC’s subsidiary, Bondex, was sued for the first time in asbestos litigation in 1980. SPHC, on the other hand, saw its first asbestos suit in 1992. SPHC claims that from 1980 to 1999, it paid only $1.6 million in asbestos related indemnity costs. The Debtor views this relatively low amount of asbestos costs as proof that “plaintiffs’ counsel viewed the Debtors’ joint compound products as a non-factor that played no material role in the causation of asbestos-related disease.” See Informational Brief, at *4.
Asbestos claims against SPHC grew substantially following the asbestos-related bankruptcies in 2000 and 2001. According to the Debtor, the increase in the company’s asbestos claims were the result of plaintiffs’ counsel search for “new sources of revenue to replace the payments that had up until that time come from then-bankruptcy defendants …” Informational Brief, at *4-5. SPHC’s asbestos costs escalated over the last decade. In 2000, SPHC’s asbestos costs totaled $8.2 million. By 2010, the company’s asbestos costs were up to $75 million. The company attributes the jump in costs to the “over-naming or erroneous naming of the Debtors” in asbestos claims. Id., at *6.
Proposed Claims Handling Process
Through the claims process, SPHC hopes to weed out “meritless claims”. Id., at *9. The Debtor also hopes to gain an accurate assessment of the company’s asbestos liability. To do so, SPHC intends to determine its market share, the statistical likelihood of causation and proper contributions from other bankruptcy trusts. Id., at *10. Going in to bankruptcy, SPHC has over 10,000 asbestos claims pending against it.
SPHC will ask the Bankruptcy Court to approve an early claims bar date and require a claim form that addresses “all aspects of a claimant’s claim” Id. The type of information the Debtor will seek in its claim form includes:
- Disease information, including diagnosing physician, diagnosing facilities and social history;
- The claimant’s law firm;
- Entire occupational and non-occupational exposure history;
- All bankruptcy trusts to which the claimant has submitted a claim;
- All bankruptcy trusts from which the claimant has received payment; and
- All settlements the claimant received in the tort system.
After the claims bar date, the Debtor intends to engage in “shaping litigation.” Id. at 11. The shaping litigation will determine the types of claims that can be considered when estimating the Debtor’s claims liability. During this stage of the litigation, the Court will be confronted with issues such as the dates to include for alleged exposure, the methodology for estimating claims as well as the level of specificity for product identification. Once an estimation of claim liability is established, the Debtor intends to negotiate and confirm a plan of reorganization.
What a debtor hopes to accomplish in bankruptcy is often different from what it actually accomplishes. Although SPHC has mapped out how it intends to proceed with the claims process, other interested parties such as asbestos claimants, insurers, and the United States Trustee (to name a few) may have different objectives. It will be interesting to see how the Bankruptcy Court deals with these competing interests.
This bankruptcy proceeding is before the Honorable Kevin J. Carey, Chief Judge of the United States Bankruptcy Court for the District of Delaware. A copy of Judge Carey’s Chambers Procedures is available here.