Zen and the Art of Committee Courtship

A few weeks ago, Passover seders concluded with the singing of a traditional (and, some would say,
annoying) song called "Chad Gadyah," or "One Kid [Goat]." Children challenge one another to sing ever
faster the successive verses that encompass one another like the layers of a Russian matrioshka doll. The
song's grandest achievement (such as it is) is in its last verse, when all the connections among all the song's
characters are laid bare:

Then came the Holy One and slew the angel of death, who killed the butcher, who slaughtered the
ox, that drunk the water, that extinguished the fire, that burnt the stick, that beat the dog, that bit the cat, that chased the kid that my father bought with two coins.

Fast on the heels of Passover this year, from Brooklyn comes an important first step in what may be
another long chain of interconnected legal finger-pointing—Bad Guy 3, who did a bad thing to Bad Guy
2, who did a bad thing to Bad Guy 1. The case, Falise v. The American Tobacco Co.¹, is, for all intents
and purposes (well, at least for ours), Big Asbestos v. Big Tobacco. Perhaps recognizing (as many fans of
Toxins-Are-Us have already discovered) that environmental poisons are rarely happy to wreak havoc all
by themselves, the plaintiffs Falise, Klein, Macchiarola and Markety—the trustees of the asbestos-claims
trust established in 1988 as a result of the Johns-Manville bankruptcy (the Trust)—have alleged that the
tobacco industry is liable to the Trust for Big Tobacco's alleged role in contributing to the Trust claimants'
asbestos-related injuries.

As Senior Judge Jack Weinstein puts it, "If plaintiffs' allegations are true, this case represents the
intersection of massive conspiracies to conceal the synergistic dangers of asbestos exposure and tobacco
smoking from asbestos workers who were likely to be fatally affected by the combined inhalation of the
two."²

A brief refresher on asbestos litigation, the resulting bankruptcies and "channeling injunctions" helps
here.³ From the 1920s until industry production largely ceased in the early 1970s, Johns-Manville was the
largest manufacturer and supplier of asbestos products in the United States, with (at its peak) some 33
production facilities throughout North America. It is estimated that millions of Americans were exposed
to asbestos fibers during the decades in which asbestos products were ubiquitous in industrial, commercial,
military and residential settings.

Findings of serious health risks associated with asbestos began to appear in the medical and scientific
literature as early as the 1900s, and by the later 1930s and early 1940s, evidence had begun to mount
demonstrating a clear association between asbestos exposure and lung cancer. Not until the late 1970s were
large numbers of suits commenced by asbestos workers against Johns-Manville and other manufacturers.
By the early 1980s, Johns-Manville was defending thousands of suits in state and federal courts throughout
the country. Johns-Manville's ensuing chapter 11 bankruptcy in 1982 stayed the many suits and eventually,
in November 1988, culminated in a confirmed plan of reorganization that established a trust to compensate
Johns-Manville's asbestos victims, many of whom were (and still are) unknown (since asbestos's latency
period can exceed 40 years).

The Trust became the model for the asbestos claim "channeling-injunction" provisions that Congress
enacted into the Bankruptcy Code in 1994. If a trust is established in accordance with the criteria set forth
in Bankruptcy Code §524(g) and (h), asbestos-injury claimants⁴ will be enjoined from pursuing recoveries
against former asbestos manufacturers (or their former directors and officers). Such claims will be
"channeled" into the Trust, and recoveries on such claims may be had only in accordance with, and from
the assets of, the Trust.

The Johns-Manville Trust was originally funded by the equity and assets of Johns-Manville, as well as
a large cash contribution from insurance companies, and established a program for the liquidation and
payment of claims on a "first-in, first-out" basis. The Trust was essentially insolvent by early 1989 due to
operating costs of more than $1 million a week, much-higher-than-anticipated settlements and a flood of
claims against the Trust that astronomically outpaced estimates.⁵ As a result, the Trust was eventually
reconstituted in 1996 after years of class-action litigation arising out of these very substantial inadequacies
and shortcomings. The reconstituted Trust caps recoveries at 10 percent of liquidated claims.⁶

The Trust is simply and obviously a financially distressed entity. Now, the Trust—perhaps motivated
by its financial distress—has commenced a legal campaign against Big Tobacco, an industry that has
(with a few recent exceptions) avoided large-scale tort liability, seeking to dip substantially into what is
(for now) a deep pocket. The theory is what Judge Weinstein has called the "synergistic" relationship
between asbestos and tobacco: "Substantial evidence exists that smoking sharply increases the risks and
severity of asbestos-related diseases by working 'synergistically' with asbestos. The combined effect
of tobacco use and asbestos exposure on human health is far greater than the sum of their individual
effects."⁷ The Trust has alleged that the tobacco industry tried for years to cover up and even
misrepresent and deny this synergy. The Trust also alleges that the tobacco industry actively encouraged
asbestos workers to smoke, citing a 1979 article in which the Tobacco Institute claimed that "asbestos
workers who do not smoke face an increased cancer risk."⁸

The Trust hopes that the net impact of this approach will be a massive recovery against the major
players in the tobacco industry, a recovery that will go into the Trust's coffers to enhance payments to
asbestos Trust claimants. Judge Weinstein has granted one of Big Tobacco's summary judgment motions
with respect to certain causes of action, but denied others and denied several motions to dismiss, and the
case appears headed for trial in the U.S. District Court in Brooklyn, beginning July 5.⁹

Whatever the outcome—and Judge Weinstein's very lengthy and detailed recitation of the tobacco
industry's culpability would seem to be a pretty fair tip-off of where this case is headed—the Trust's action
against the tobacco companies may be a harbinger of big-time, post-confirmation lawsuits on the horizon.
After years of being on the defensive, the Trust has turned around to become the aggressor:

Big Asbestos that poisoned the worker, who sued the Trust, that sued Big Tobacco, that smote the
smoker, that burned the cigarette that my father bought for 8¢.

Until now, the tobacco industry has by and large been able to take its litigation medicine in one-plaintiff
swallows. Huge class actions have had little success in hitting the tobacco industry with truly enormous
judgments, and a single plaintiff, even a successful one, is not likely to affect a (now widely diversified)
tobacco giant's bottom line enough for bankruptcy lawyers to start traveling to North Carolina.

But a trust—and its lawsuit—grows in Brooklyn. If the Trust, which represents literally hundreds of
thousands of claimants, is successful in obtaining a recovery in its lawsuit, the compensatory and punitive
damages could be staggering. And it's an easy vehicle for such a recovery; the plaintiffs, in a very real way,
number in the hundreds of thousands, yet nobody has to worry about certifying a class. A judgment against
tobacco companies commensurate with the size of the Johns-Manville Trust could cause real liquidity
concerns for at least some of the smaller, less diversified companies. Will we see chapter 11s for tobacco
companies? Will we see channeling injunctions in those cases (they would seem to be no less appropriate
in tobacco cases than in asbestos cases), made possible by creative bankruptcy judges and quick
congressional action along the lines of §524(g)? If so, who will the tobacco trusts sue to keep the song
going?

Footnotes

¹ 2000 U.S. Dist. LEXIS 5758 (E.D.N.Y., May 1, 2000) (Weinstein, J). Return to article

² 2000 U.S. Dist. LEXIS 5758, at 10. Return to article

³ Judge Weinstein's decision contains an excellent history of the asbestos industry, litigation and resulting bankruptcies. See Id. at
10-19. Return to article

⁴ Section 524(g) and (h) are limited strictly to asbestos cases. Many courts have used the presence of this specific exception to
§524(e) as further evidence that Congress does not intend bankruptcy courts to use §105(a) as a means to grant permanent injunctions
and releases of non-debtor third parties under a plan of reorganization. See, e.g., In re Continental Airlines, 203 F.3d 203
(3d Cir. 2000). Return to article

⁵ The original plan of reorganization "assumed that during the life of the Trust, between 83,000 and 100,000 claims were likely
to be filed, and the plan called for full payment to all claimants based on that estimate. By 1991, the Trust had already received
nearly double the predicted claims." Id. at 17. Return to article

⁶ Id. at 18. Return to article

⁷ Id. at 22. Return to article

⁸ Id. at 28. Return to article

⁹ Id. at 122-123. Return to article