CREDITORS' RIGHTS ALERT: In today's turbulent markets creditors confront increasing risk. Caplin & Drysdale has a team of litigators and restructuring attorneys who focus on protecting creditors' rights in corporate restructurings and bankruptcies. Our experience includes representation of corporate creditors and creditor committees in complex reorganization proceedings, contested insolvency and claim-valuation issues under the Bankruptcy Code, suits to challenge fraudulent conveyances and impose successor liability, disputes involving derivative securities such as credit default swaps, and the liquidation of a mortgage-loan originator. If you are a creditor whose rights are threatened, contact us.

Creditors' Rights

Victims of mass torts often face significant legal hurdles in reaching the assets necessary to provide just compensation for their injuries, even after a defendant’s liability has been established. Actions by a defendant such as transferring valuable assets, filing for bankruptcy, or engaging in other corporate restructuring can severely hinder the tort claimants’ ability to recover for their claims. In many cases, the mass tort claimants become one of several creditor constituencies seeking compensation from a business with insufficient assets to pay all claims in full.

Often, when a company seeks bankruptcy protection due to mass tort liabilities, it severely understates those liabilities in its bankruptcy and public securities filings. The result is often contentious and complex multi-party litigation among the tort creditors and the defendant debtor, other creditors, shareholders and in some instances insurance companies to establish a fair estimate of the tort liabilities and to determine the assets which should be available to pay tort creditors. Sophisticated creditors rights counsel who are skilled in both complex litigation and the negotiation of multi-billion dollar corporate reorganization agreements is thus crucial for the tort claimants if they are to receive fair treatment.

Caplin & Drysdale is home to several of the nation’s leaders in mass tort creditors’ rights litigation. Our team has many years of experience working with mass tort victims and their tort lawyers to ensure that they receive fair compensation.

For over twenty years, we have been called upon by leading members of the plaintiffs’ bar to protect their clients’ rights as creditors in a wide variety of situations. We have represented tort claimants in class actions against defendants and transferees seeking to recover assets. In mass tort bankruptcies, we have represented tort claimants in litigation and negotiations with debtor’s counsel, other creditors, and insurance companies over the terms for reorganization. In the course of developing a plan of reorganization or a class action settlement, our team has participated in the drafting of the reorganization or settlement plan documents, including the tort claimants’ trust agreement and related agreements dealing with trust distribution procedures and tax issues. After a plan is implemented and the settlement trust is established and funded, we often have played a continuing role counseling lawyers for the tort claimants with respect to the operation of the settlement trust.

Caplin & Drysdale is a recognized leader in representing mass tort claimants and in protecting the rights of mass tort victims as creditors. Since 1985, we have served as creditors’ committee counsel or class counsel for mass tort victims in over 20 different corporate reorganizations or class action litigations. These representations have given us substantial experience and expertise in complex financial litigation, the law of fraudulent conveyances and veil piercing, as well as in special bankruptcy situations.

Representative engagements include the following:

Johns Manville This was the seminal asbestos bankruptcy case in which the largest world wide manufacturer of asbestos products sought bankruptcy protection in 1982 due to its overwhelming asbestos liabilities. Caplin & Drysdale represented the asbestos creditors’ constituency in the bankruptcy proceedings.

Result: After lengthy proceedings, a reorganization plan, which withstood appellate challenge, was developed to resolve the many novel and hotly disputed issues. The centerpiece of the plan was the creation of the Manville Personal Injury Trust, which received ownership of 80% of stock of Manville and its affiliates, together with other assets valued in excess of $1 billion. That Trust became responsible for compensating existing and future asbestos claimants for injuries resulting from exposure to Manville’s products.

Hillsboro Holdings Inc. Caplin & Drysdale represented over 1,000 individual asbestos personal injury claimants who were named as defendants in an adversary proceeding brought by the debtors in the Jim Walter Co. bankruptcy proceedings. The debtors sought a declaratory judgment that they had no legal responsibility for the asbestos-related liabilities of the Celotex Corporation, a former affiliate. We sought to impose those liabilities on the Hillsborough entities under various theories for "piercing the corporate veil."

Result: After trial in the Bankruptcy court and appeal to the District Court, the litigation was settled for over $390 million for the benefit of Celotex’s asbestos victims. The settlement was embodied in plans of reorganization for both the Hillsborough entities and Celotex.

Fibreboard Class Action Caplin & Drysdale served as special counsel to the plaintiff class in an innovative proposal for a three-way $1.5 billion global settlement of the future asbestos-related liabilities of the Fibreboard Corporation and of Fibreboard’s related claims against its insurers for coverage for those liabilities.

Result: While the Supreme Court ultimately disapproved the non-opt-out class action settlement, our efforts and those of our co-counsel forced a resolution between Fibreboard and its insurers incorporating the $1.5 billion in the settlement funds available to pay the claims of Fibreboard’s future asbestos victims.

Owens Corning Owens Corning was the principal target defendant in asbestos litigation from the 1980s until it filed for bankruptcy protection in October 2000. At the time it filed for bankruptcy protection, Owens Corning claimed in its public securities filings that its liability for all pending and future asbestos personal injury claims was $2.2 billion. Caplin & Drysdale was lead counsel for the asbestos creditors’ constituency in the bankruptcy proceedings.

Result: After six years of litigation involving two trials in Federal District Court, one of which established that Owens Corning’s asbestos liability was $7 billion (not $2.2 billion, as argued by the commercial creditors and the companies’ shareholders), the Owens Corning bankruptcy was resolved with the asbestos creditors receiving almost $4 billion to fund a trust to pay present and future claims.

Armstrong World Industries In December 2000, Armstrong sought bankruptcy protection. At the time, its financial statements indicated that its liability for present and future asbestos claims was $700 million. Caplin & Drysdale was lead counsel for the asbestos creditors’ constituency in the bankruptcy proceedings.

Result: Caplin & Drysdale was lead counsel in a trial in Federal District Court in which the Court determined that Armstrong’s asbestos liabilities were at least the $3.1 billion upon which the plan of reorganization was based. As a result, the plan was confirmed over the objection of Armstrong’s commercial creditors and resulted, after six years of litigation, in the creation of a trust with assets valued at over $2.5 billion dollars for the benefit of present and future asbestos claimants.

USG In June 2001, USG (formerly United States Gypsum) sought bankruptcy protection, claiming that its asbestos liabilities were no more than $1 billion and that only certain subsidiaries had any liability for asbestos claims at all. Caplin & Drysdale was lead counsel for the asbestos creditors’ constituency in the bankruptcy proceedings.

Result: Following several years of litigation over the size of USG’s asbestos liabilities and which subsidiaries were subject to those liabilities, the case was resolved through an innovative “hi-low” settlement agreement in which the total dollar amount of the settlement was contingent upon whether or not the Congress enacted asbestos reform legislation by the end of 2006. Pursuant to that agreement, USG made an initial $900 million contribution in cash to fund a trust to pay present and future asbestos claimants, and agreed to pay an additional $3.05 billion if asbestos reform legislation was not enacted. Congress recessed in December 2006 without enacting such a bill, and USG promptly paid the additional $3 billion to the trust, for a total of $3,950 million.

Our Services

• Creditors' rights litigation involving issues of fraudulent conveyance, successor liability, and piercing the corporate veil
• Class action litigation aimed at mass tort resolution
• Bankruptcy proceedings and reorganizations precipitated by mass tort liabilities
• Counseling the plaintiffs' bar and their clients regarding operations of settlement trusts and other compensation mechanisms outside the tort system