Free Opinion - District Court of Delaware - Delaware

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FOR PUBLICATION IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE : Bankruptcy No. 01-10578 (RTL) : FEDERAL-MOGUL GLOBAL INC., : T&N LIMITED, et al., : : Debtors. : _______________________________________:________________________________ THE OFFICIAL COMMITTEE OF : ASBESTOS CLAIMANTS and : ERIC D. GREEN, as the : LEGAL REPRESENTATIVE FOR : FUTURE ASBESTOS CLAIMANTS, : : Plaintiffs, : : v. : Civil Action No. 05-59 (JHR) : ASBESTOS PROPERTY DAMAGE : COMMITTEE, : : OPINION Defendant. : APPEARANCES: Attorneys for The Official Committee of Asbestos Claimants Marla R. Eskin, Esq. Kathleen J. Campbell, Esq. CAMPBELL & LEVINE, LLC 800 N. King Street Suite 300 Wilmington, DE 19801 -andElihu Inselbuch, Esq. Nathan D. Finch, Esq. Danielle K. Graham, Esq. CAPLIN & DRYSDALE, CHARTERED 399 Park Avenue New York, NY 10022 In re:

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Attorneys for Legal Representatives for Future Asbestos Claimants Rolin P. Bissell, Esq. Maribeth L. Minella, Esq. YOUNG CONAWAY STARGATT & TAYLOR, LLP 1000West Street, 17th Floor P.O. Box 391 Wilmington, DE 19899-0391 Attorneys for The Official Committee of Asbestos Personal Property Claimants Theodore J. Tacconelli, Esq. FERRY, JOSEPH & PEARCE, P.A. 824 Market Street, suite 904 Wilmington, DE 19899 -andMichael P. Kessler, Esq. Adam P. Strochak, Esq. Peter M. Friedman, Esq. Kristin King Brown, Esq. WEIL, GOTSHAL & MANGES LLP 767 Fifth Avenue New York, NY 10153

TABLE OF CONTENTS I. Introduction II. Findings of Fact A. T&N's Liability in the United States 1. Limpet 2. Keasbey 3. Raw Fiber 4. United Kingdom Finished products B. T&N's Liability in the United Kingdom C. Medical Evidence on Asbestos Related Disease -2-

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D. T&N's Litigation Experience in the United States 1. Pre-1985 2. The Asbestos Claim Facility 3. The Center for Claims Resolution 4. Post-CCR E. T&N's Litigation Experience in the United Kingdom F. Estimations of Liability 1. Pending United States Claims 2. Settlement Averages and Dismissal Rates 3. Future United States Claims 4. Aggregate United Kingdom Liability G. Plaintiffs' Criticisms of Dr. Cantor's Methodology H. Defendant's Criticisms of Dr. Peterson's Methodology III. Conclusions of Law A. Procedural History and Jurisdiction B. English Law Considerations C. Estimation in Bankruptcy 1. Purpose of an Estimation 2. Method of the Estimation D. T&N' Liability for Asbestos Personal Injury Claims 1. Number of Pending and Future United States Claims 2. Settlement Averages for United States Claims 3. Aggregate Liability in the United Kingdom 4. Interest and Inflation 5. Conclusion I. INTRODUCTION

This case comes before the Court as a contested matter on the estimation of the aggregate present value of pending and projected future asbestos personal injury and wrongful death claims asserted against Turner & Newall Limited, a United Kingdom company, and its non-United States subsidiary companies (collectively "T&N"). The Court has reviewed the briefs and supporting materials filed by the Official Committee of Asbestos Claimants ("ACC") and Eric D. Green, as the legal representative for the future -3-

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asbestos-related personal injury claimants (collectively the "Plaintiffs" or "Personal Injury Claimants") and the Asbestos Property Damage Committee ("Defendant" or "PD Committee") 1 , has considered the arguments of all interested parties, and has heard and weighed the testimony of fact and expert witnesses who testified during the five (5) day trial beginning on June 14, 2005, as well as the evidence admitted at the Estimation Hearing.2 On June 30, 2005 the parties filed proposed Findings of Fact and Conclusions of Law. On July 14, 2005, the Court heard and considered closing arguments and questioned the parties on their respective arguments and evidence. In addition, the Court received Response Briefs from each party that sought to dispute aspects of their adversary's Findings of Fact and Conclusions of Law. Furthermore, the estimation was a contested matter under Fed. R. Bankr. P. 9014. As such the Court takes judicial notice of the entire docket in the bankruptcy cases. See In re Indian Palms Assocs., Ltd., 61 F.3d 197 (3d Cir. 1995). Therefore, in accordance with Fed. R. Civ. P. 52, the following represents the Court's Findings of Fact and Conclusions of Law.

The PD Committee consists of five members: Anderson Memorial Hospital, Jacksonville College, Moxie Real Estate, Richard Blyth, and the Hill School. The PD Committee represents the interests of approximately 3,200 municipalities, school districts, hospitals, businesses, and individuals who own and operate buildings where T&N manufactured asbestos products were installed, and have filled proofs of claim for damages. Neither the Debtors, nor any of the Official Committees in the Chapter 11 proceeding, the administrators appointed in the Debtors' United Kingdom insolvency proceedings (the "U.K. Administrators"), the trustees for the T&N Retirement Benefits Scheme (1989) (the "T&N Pension Trustees"), or any other U.S. or U.K. creditors made an appearance at the Estimation Hearing. -42

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II.

FINDINGS OF FACT

T&N is a wholly-owed subsidiary of Federal-Mogul Global, Inc. ("Federal Mogul"), which was acquired by Federal-Mogul in March 1988 in a stock purchase. (PD Exh. 34 at 30.) The Turner and Newall families formed T&N in England in 1920, and according to T&N's National Trial and Coordinating Counsel for the United States, Paul Hanly, Esq. ("Hanly"), it first discovered the dangers of asbestos as early as 1921. (Tr. at 86-87.)3 Between 1976 and 2001, T&N resolved approximately 245,000 asbestos personal injury cases (PD Exh. 2 at 9) and has paid out nearly $835 million (present value) to resolve these claims. (Tr. at 27 (Hanly).) On October 1, 2001 (the "Petition Date"), Federal-Mogul filed for relief under Chapter 11 of the Bankruptcy Code in response to the mounting liabilities from asbestos litigation. This estimation has created a conflict between members of the Plan Proponents and the PD Committee. The contested issue relates to the underlying Third Amended Plan of Reorganization (the "Plan"), which the PD Committee argues unfairly allocates value among the creditor constituencies. The PD Committee was not involved in the formulation in what it calls the "Central Deal," an agreement forged between the ACC and other creditors committees. (PD FOF at 14.) As it now stands, the Central Deal allocates 50.1% of the Reorganized Federal-Mogul equity (no cash) to the proposed asbestos personal trust and 49.9% of the equity to the Federal-Mogul note holders (the Cites to the Estimation Hearing transcript will be Tr. at ______. Where necessary, the testifying witness will be put in parentheses. -53

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"Banks"). (See PD Ex. 34 at 6.) The 50.1% of the equity of the Reorganized FederalMogul will establish a trust in accordance with section 524(g) in the Bankruptcy Code and the Trust Distribution Procedures ("TDPs") in the Plan. Other unsecured claims, including the claims of the PD Committee, are to be decided under one of three distribution ratios of the plan, which is dependant on aggregate estimated value of asbestos personal injury claims against T&N. (PD FOF ¶ 19.) Essentially, the higher the estimate of the aggregate liability, the higher the denominator will be, thereby lowering the ratio and lowering the percentage of recovery for other, non-asbestos personal injury unsecured claims against T&N. (Id.) The asbestos personal injury claims, however, will receive the aggregate number in the numerator under any of the distribution ratios. Therefore, the PD Committee asserts that a higher estimate of asbestos personal injury claims will suppress the amount of cash the Debtors will need to satisfy the claims of property damage claimants and other unsecured creditors of T&N, thus raising the value of the new equity securities that will be distributed to most creditor constituencies and freeing cash flow to pay interests on the new debt that will be issued to various banks. As such, the PD Committee proffers a lower estimate of aggregate liability, whereas the Personal Injury Claimants seek a larger amount. The Court's function here is not Plan confirmation; rather, the Court is charged with determining an estimation of liability for the creation of a personal injury trust, which is one of many aspects that will be considered by the Bankruptcy Court when it considers the confirmation of the Plan.

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A. T&N's liability in the United States T&N was named in its first asbestos personal injury case in the United States in August 1977. (PD Exh. 34 at 31.) By the Petition Date, approximately 114,000 lawsuits were pending in the United States (Id.) Hanly testified that T&N's liability in the United States arose out of four product lines. A brief discussion of these sources of liability is important in understanding the significant reach of T&N's asbestos containing products in the United States and the United Kingdom. 1. Limpet

The Limpet product was invented by T&N in 1931 and was distributed throughout the United States from 1934 to 1974. (Tr. at 56 (Hanly).) Limpet was a spray-on application that was used for fireproofing, insulation, condensation control, and decorative finishes. (Id.) Limpet was made of pure asbestos, either amosite or crocidolite, and had the greatest asbestos content of any product in the United States. (Id.) According to the Disclosure Statement Describing the Third Amended Plan of Reorganization (hereinafter the "Disclosure Statement" and submitted as PD Exh. 34.), the Limpet was not widely marketed or used in the United States due to its significant expense, its relatively slow spraying process and the U.S. licensees' lack of success in promoting it. (PD Exh. 34 at 32.) From 1957 to 1965, approximately half of all Limpet sold in the United States went into three high-profile projects: Chase Manhattan Plaza in New York City, the Prudential Center in Boston, and the Central Terminal Building at

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LaGuardia International Airport. (Id. at 32-33.) Since the late 1970s, T&N was named in relatively few cases by plaintiffs alleging Limpet exposure. (Id.) 2. Keasbey

In 1934, T&N purchased Keasbey & Mattison Co. ("Keasbey"), who until 1962, manufactured and sold every variety of asbestos-containing product, including Limpet, textiles, insulation, and building materials. (Tr. at 54-56 (Hanly).) Keasbey was often referred to as a "mini Johns-Manville." (Id. at 54.) In 1962, T&N sold Keasbey's assets. In the late 1980s, asbestos plaintiffs discovered that T&N was the supplier of raw asbestos fiber to Keasbey, and began asserting claims against T&N on this supplier theory. Also, plaintiffs pursued claims on an alter ego theory, which proved largely unsuccessful in the courts (see PD Exh. 34 at 33) and few claims were settled based on the alter ego or similar theories of liability. Because of the breadth of the Keasbey product line, the resulting liability from Keasbey products could be substantial. 3. Raw Fiber

T&N owned asbestos mines and mining interests in southern Africa and Canada. (Tr. at 53 (Hanly).) T&N sold raw fiber to asbestos companies in the United States, and used its mined fiber to manufacture its own products. (Id.) T&N was sued in the United States by plaintiffs alleging personal injury from asbestos exposure in the manufacturing or transportation process. (Id.) T&N was also sued by end-users of asbestos containing products on a supplier theory. T&N's Disclosure Statement states that it brokered a

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"minuscule amount" of fiber to United States companies. (PD. Exh. 34 at 34.) Nevertheless, T&N did form a joint-venture with Johns-Manville, which still exists today, and might be a potential source of liability for claimants injured by Johns-Manville products. (Tr. at 58 (Hanly).) 4. United Kingdom Finished Products

T&N had several United Kingdom subsidiaries that manufactured finished products containing asbestos and marketed them in the United States. Based on the agency relationship that existed between T&N and the United Kingdom subsidiaries, Hanly testified that the parent was responsible for all claims against any of the two United Kingdom subsidiaries. (Tr. 59-60 (Hanly).) Two of the subsidiaries were TBA Industrial Products Ltd. and Ferodo U.K. (Tr. 60-61.) Hanly testified that TBA Industrial was named in more than 75 percent of the claims against T&N in the United States; whereas, Ferodo was only named in 1 to 5 percent. (Tr. at 61.) B. T&N's Liability in the United Kingdom T&N's United Kingdom asbestos claims administrator, Andrea Crichton ("Crichton") testified that T&N's liability in the United Kingdom differs from that in the United States because the majority of asbestos personal injury claims in the United Kingdom are based upon negligence and/or failure to provide a reasonably safe workplace for T&N employees. (Tr. at 153 (Crichton).) Other claims are from family members who lived with T&N employees, environmental exposure claims from persons living in the vicinity of T&N factories, and some products liability claims. (Tr. at 153-9-

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54.) The evidence submitted indicates that the United Kingdom's liability is substantially lower than that of the United States. C. Medical Evidence on Asbestos Related Disease Each party put forward its respective expert to discuss the medical evidence regarding the incidence and trends of asbestos related diseases in the United States. Plaintiffs presented expert testimony from a medical doctor, Laura Welch, M.D. ("Welch"), a physician with board certifications in both occupational environmental medicine and internal medicine. (Tr. at 183 (Welch).) Dr. Welch has held faculty and medical staff positions at the Albert Einstein School of Medicine, Yale University School of Medicine, George Washington University School of Medicine, and the Washington Hospital Center. (Tr. at 189.) Dr. Welch has had over twenty-five years of experience in the diagnosis and treatment of asbestos-related diseases, and in the design of programs for that purpose. (Tr. at 186-87.) The PD Committee submitted the testimony of Dr. Hans Weill, M.D., who is a board-certified pulmonologist, former President of the American Thoracic Society, and researcher with 35 years of experience in the study and treatment of asbestos exposure. (See Testimony of Hans Weill, M.D., in Owens Corning v. Credit Suisse First Boston, No. 04-CV-905 (D. Del.) 1/18/2005 at 45-48 (hereinafter "Weill Tr. at ___").)4 Dr. Weill has been on the staff at Tulane Medical Center since 1976 and has personally evaluated over 1,000 individuals exposed to asbestos. (Id.) Dr. Weill's Owens Corning testimony was admitted to the record pursuant to an agreement among the parties. (See Tr. at 803-04.) -104

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Even though the ravages of asbestos diseases are well documented, the experts dispute the trends in the main categories of disease: mesothelioma, lung cancer, other cancers, and nonmalignant diseases, such as asbestosis, pleural plaques, and thickening. Both experts agree that the latency period for most asbestos related disease is 20 to 40 years. (Weill Tr. at 40; Tr. at 255 (Welch)). In essence, Dr. Weill asserts that because of the dose response function for asbestos-related disease, and the fact that workplace exposures have become increasingly less prevalent since 1972, the overall disease burden in the United States is declining. (Weill Tr. at 71.) Dr. Weill believes, in part, that the phenomenon of systematic over-reading of chest x-ray films by asbestos litigation screening facilities, as reported in the Gitlin Study (see PD. Exh. 28), undermines the evidence that the incidence of asbestos-related disease is increasing as against T&N. (PD Exh. 59 at 6.) Based on his 2004 study "Changing Trends in Mesothelioma Incidence" (See PD Exh. 62), Dr. Weill concluded that the peak incidence of mesothelioma in the United States occurred in 1994, and that the incidence has since decreased. (Weill Tr. at 59.) Because mesothelioma incidence is probably "the clearest measure of the extent of asbestos related disease, these [declining] trends strongly indicate that the overall burden of asbestos health effects in the USA is waning, a pattern that would be expected to continue." (PD Exh. 62 at 441.) Dr. Weill criticizes the Nicholson Study5 as being The"Nicholson Study" is the oft-cited report authored by William J. Nicholson, et al., entitled Occupational Exposure to Asbestos: Population at Risk and Projected Mortality-19802030, 3 American Journal of Industrial Medicine 259 (1982) (hereinafter the "Nicholson Study" and submitted as Pl. Exh. 5), which sought to predict the incidence of asbestos related cancers until the year 2030. -115

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overstated because it does not accurately reflect recent reduced exposure conditions. (PD Exh. 21 at 8.) Also, Dr. Weill disputes the assertion that other forms of cancer, such as esophageal, colo-rectal or laryngeal cancer are causally related to asbestos exposure. (PD Exh. 21 at8.) Conversely, Dr. Welch aligns herself with the projections of the Nicholson Study and the Surveillance, Epidemiology, and End Results ("SEER")6 data, which indicate that there are currently about 2,800 new mesothelioma cases in men each year, plus several hundred cases in women. (See Tr. at 270 (Welch).) Dr. Welch states that the incidence of mesothelioma in the United States has not yet reached its peak, but believes the rate is slowing. (Tr. at 283.) Furthermore, the Health and Safety Executive of Great Britain ("HSE"), which is responsible for the regulation of health and safety risks in Great Britain, published a report in 2003 that states the annual number of mesothelioma deaths. (See Pl. Exh. 6.) This report indicates that the number of mesothelioma deaths in Great Britain has risen fairly constantly over time, from 153 in 1968 to 1,848 in 2001, and is expected to peak at 1,950 to 2,450 around 2011 to 2015. (Pl. Exh. at 6.) Lung cancer has also been attributed to asbestos exposure, however, a diagnosis of asbestosis is not necessary for the development of asbestos-related lung disease. (Tr. at 249 (Welch)). Yet, workers with asbestosis have a four-fold increased risk of developing

SEER Incidence Age-Adjusted Rates, 9 Registries, 1973-2002," National Cancer Institute, Bethesda, Maryland, available at http://www.seer.cancer.gov/faststats/sites.php? site=Mesothelioma&stat=Incidence (last visited July 18, 2005). -12-

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lung cancer. (Tr. at 203 (Welch); Weill Tr. at 102.) Regarding nonmalignant diseases, such as pleural disease and asbestosis, it is possible that a diagnosis can be made without the patient demonstrating functional impairment. (Tr. at 197 (Welch); Weill Tr. at 61, 101). Moreover, the 2004 American Thoracic Society Statement (the "ATS Statement"), which provides guidelines for diagnosing nonmalignant asbestos-related disease, states that asbestos can cause injury without functional impairment. (Pl Exh. 25 at 691; Tr. at 199 (Welch). Diagnosis of asbestosis can also be complicated by the fact that asbestosis can exist when a person has a normal chest x-ray on an ILO scale.7 (Tr. at 201-202 (Welch);Weill Tr. at 75, 101.) The 2004 ATS Statement supports the assertion that asbestosis can persist despite no radiographic evidence (x-ray) of asbestosis. (Pl. Exh 25 at 696, 705.) Like, mesothelioma, other nonmalignant diseases have prolonged latency periods. Based upon CDC/NIOSH data, Welch stated that over the decade of 1990-2000 asbestosis incidence continued to rise and peaked at 20,000 hospitalizations in 2000. (Tr. at 259 (Welch); Pl. Exh. 33 at 3-4.) D. T&N's Litigation Experience in the United States Plaintiffs presented Mr. Paul Hanly ("Hanly"), the primary outside defense counsel for T&N in the United States for the twenty years preceding its bankruptcy, to describe

The term "ILO Scale"' means the system for the classification of chest x-rays set forth in the International Labour Office's Guidelines for the Use of ILO International Classification of Radiographs of Pneumoconioses (1980) as amended by the International Labour Office. The National Institute for Occupational Safety and Health's ("NIOSH") B Reader approval is granted to physicians who demonstrate proficiency in the classification of chest radiographs for the pneumoconioses using the ILO Classification System. See http://www.cdc.gov/niosh/topics/ chestradiography/breader-info.html (last visited August 17, 2005). -13-

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T&N's litigation strategies in response to its mounting asbestos liability. The PD Committee did not offer rebuttal testimony. Hanly's evidence was crucial because it shed light on the task of placing the appropriate weight on T&N's historical settlements, and provided insight into the perils that T&N faced in the months before filing bankruptcy. The Court finds Hanly's testimony regarding the various strategies used by T&N is credible and corroborated by the testimony of Mr. William Hanlon, the primary outside counsel for the Center for Claims Resolution (the "CCR"), Mr. Michael Lynch, CFO for T&N, and Dr. Mark Peterson ("Dr. Peterson"), the Plaintiffs estimation expert. 1. Pre-1985

T&N's early strategy was to settle legitimate claims for the lowest amount possible so that it could avoid the uncertainties and risks associated with litigation. (Tr. at 65 (Hanly).) Hanly explained that this response was borne out of necessity because in cases involving mesothelioma and lung cancer the jury verdicts were usually high since it was easy for plaintiffs to impute corporate knowledge to T&N based upon corporate documents dating back to the 1930s. (Tr. at 85-87.) Therefore, establishing liability against T&N for failure to warn was not difficult.

2.

The Asbestos Claim Facility

In June 1985, T&N joined the Asbestos Claim Facility ("ACF"), a consortium of thirty-two asbestos producers and sixteen insurers, who sought to reduce the aggregate settlement costs in asbestos litigation by streamlining administration costs and pooling -14-

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together legal experience. (Tr. at 49.) Among the original members were notable asbestos-defendants Eagle-Picher, Pittsburgh Corning, Celotex Corp., Fibreboard Corp., and Owens-Corning Fiberglass Corp., U.S. Gypsum and National Gypsum, and insurers such as Aetna Life and Casualty, Fireman's Fund, Cigna, the Hartford Insurance Group, and Lloyds of London.8 After only a few years, internal disputes arose and the ACF was dissolved in October 1988. (Id.) 3. The Center for Claims Resolution

The former members of the ACF, including T&N, joined the Center for Claims Resolution ("CCR") in 1988. (Tr. at 49-50 (Hanly).) Like the ACF, the CCR had the same goals of minimizing litigation expenses and increasing its members bargaining power with personal injury claimants. (Id.) At first, the CCR was an "all pay" regime whereby each member paid a portion of a claim that was either settled or went to verdict, regardless of which party(s) were named on the complaint. (Tr. at 68.) In 1991, this changed to a named-party only regime, which required only the parties named on the caption to be liable. The CCR developed intricate share allocations that apportioned liability percentages to each claim based on the alleged occupational category or job site. (Tr. at 73.) The share allocations were based upon past settlement averages of each member and production and sales history of each member as it relates to the type,

Fitzpatrick, Lawrence, "The Center for Claims Resolution," 53 Law and Contemporary Problems 13-14 (1990). Notably, Johns-Manville was not included in the final ACF agreement because it was still under the jurisdiction of the bankruptcy courts. Id. -15-

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location, and application of the asbestos-containing product. (Tr. at 75.) Hanly considered the share allocation approach a fair way to apportion liability and the share allocation was adjusted regularly at the insistence of a member and after approval by the CCR board. (Tr. at 74-76.) Before paying a claim, the CCR generally required (1) evidence of asbestos-related disease and (2) proof of exposure by an asbestos containing product of at least one CCR member in plaintiff's complaint. (Tr. at 68.; see Pl. Exh 20 (1998 Settlement Agreement); Pl. Exh. 52 (2000 Settlement Agreement).) A plaintiff did not have to produce additional proof of exposure to every CCR member's product before settlement was reached. (6/1/05 Hanlon Dep. at 28-29.) Rather, the CCR would attempt to settle a claim for an amount that represented the total liability of all CCR members in the case. (Id.) If there was a settlement, each named-CCR member would contribute its respective share allocation. (Id. at 29-30.) Hanly testified that the CCR benefitted T&N because it paid far less in aggregate since the cost savings and reduced settlement amounts, more than offset the costs of paying claims that T&N would not have paid had it not been a member of the CCR. (Tr. at 77-78.) Nevertheless, T&N had a substantial share allocation attributed to it; from 1991 onward, T&N garnered a seat on the CCR board because it had one of the three largest liability shares in the CCR. (Tr. at 103.) According to Hanly and Dr. Peterson, T&N's share allocation hovered around 20% for certain occupational categories. (Tr. at 107 (Hanly); Tr. at 734 (Peterson).)

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In 1994, T&N and the other CCR members attempted to resolve their present and future personal injury liabilities through a class action settlement (the "Georgine class action"). See Georgine v. Amchem Prods., Inc., 157 F.R.D. 246 (E.D. Pa. 1994). Hanly testified that concept was to create a class action mechanism by which all future asbestos personal injury claims filed against any CCR member would be resolved pursuant to criteria set forth in the class action settlement agreement. The district court approved the class action settlement and entered an injunction that prohibited new claims from being filed against T&N. (Tr. at 67.) The matter was appealed to the Third Circuit and the Court of Appeals reversed the class certification. Georgine v. Amchem Prods., Inc., 83 F.3d 610 (3d. Cir. 1996). The Supreme Court affirmed the Third Circuit's decision and vacated the injunction in June 1997. Georgine v. Amchem Prods., Inc., 521 U.S. 591, 629 (1997). Hanly testified that T&N, and all of the CCR members, faced a flood of claims as a result of the four-year injunction being lifted. (Tr. at 67-68.) As a result, the CCR implemented the Strategic Settlement Program (the "SSP"), which sought to settle cases in large groups for the lowest amount CCR could negotiate. Notwithstanding this tactic, both Dr. Peterson and the PD Committee's estimation expert, Dr. Robin Cantor ("Dr. Cantor"), testified that T&N's settlement averages for mesothelioma from 1997 to 2000 rose from $43,000 to over $80,000. (See Pl. Exh. 4 at slide 9; PD Exh. 2 at 18.) In the early 1990s, certain "corporate conduct" documents came to light during T&N's litigation with Chase Manhattan Bank that concerned the costs of asbestos removal from Chase's New York City skyscraper. (Tr. at 112-115 (Hanly).) Before trial, -17-

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Chase's lawyers microfilmed a million T&N files at its Manchester England record repository. In essence, these documents traced T&N's corporate legacy as the asbestos industry leader in the United Kingdom, its early involvement in industrial hygiene, and its corporate knowledge and activities once it became known that asbestos exposure was lethal. Hanly testified that during the 1990s these documents were widely dispersed both among the legal profession, and also to the public. (Tr. at 111-115 (Hanly).) In, 2002, the content of the T&N documents was captured by a British journalist, Geoffrey Tweedale in his book entitled Magic Mineral to Killer Dust: Turner & Newall and the Asbestos Hazard. The parties dispute the effect that these events will have on T&N's future indemnity costs; however, it is not illogical to conclude, as Dr. Peterson does, that the document disclosure and the Tweedale book both impacted T&N's public notoriety as a significant contributor to the United States' and United Kingdom's asbestos crises. In January 2001, T&N left the CCR for several reasons: its share allocation had increased; the number of members had decreased (from 20 to 10), and other members were filing for bankruptcy. (Tr. at 78-79 (Hanly).) The PD Committee argues that these reasons contradict Federal Mogul's public statements in 2001, whereby it stated that T&N was leaving the CCR because it believed it needed a change in litigation strategy. (PD Exh. 94 at slide 31.) The PD Committee asserts that T&N's settlement experience in the CCR should be given full weight in consideration of what T&N's indemnity costs should be as of the Petition Date. Indeed, there is no testimony in the record that CCR members received "volume discounts" by virtue of their membership, or that plaintiffs received a -18-

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lower aggregate amount from a collective settlement than they would have received through individual settlements. (See Tr. at 1021-22 (Cantor).) 4. Post-CCR

In the nine months prior to filing bankruptcy, January 1 to October 1, 2001, T&N found itself facing thousands of claims. Hanly testified that T&N's departure from the CCR coincided with the bankruptcy filings of a number of major asbestos defendants, which he believed increased the costs and exposure of being a stand-alone defendant. (Tr. at 77-78.) During this time, Hanly testified that T&N had two requirements for settlement: (1) did the claim have enough evidence to survive a motion for summary judgment indicating exposure to a T&N or Keasbey asbestos containing product; and (2) did the claimant demonstrate evidence of an asbestos-related disease. (Tr. at 79.) T&N was able to have some success in defending itself; particularly, Hanly testified that mass consolidations of cases resulted in lower per case settlement averages. (Id.) Among the factors considered by T&N when it reached a settlement value was: severity of claimant's disease, strength of exposure evidence, strength of medical evidence, identity of plaintiff's doctor supplying the diagnosis, identity of plaintiff's counsel, jurisdiction where case was pending, plaintiff's ability to get a trial date; plaintiff's economic damages, and the history of asbestos defendants in the jurisdiction. (Tr. at 79-80, 92.) Hanly testified that T&N was aware of the credibility of many of the plaintiff medical doctors in the nonmalignant cases and priced these cases accordingly. (Tr. at 80.) Similar to its CCR membership, T&N paid out a several share of its liability -19-

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and did not factor in what a claimant might or might not get from another defendant. (Tr. at 76-77.) Hanly testified that the above mentioned factors were the criteria to price cases; thus, the threat of punitive damages were not factored into the equation. (Tr. at 92, 102.) T&N has only faced one punitive damages verdict in its history (March 2001), which was bonded and paid in 2004 and not included in the T&N database. (Tr. at 92.) Importantly, neither estimation expert considered punitive damages in arriving at their settlement averages. After the CCR, T&N resolved some nonmalignant claims (most in a settlement of 10,700 premises liability claims pending in Mississippi for $300 each), but largely focused its litigation efforts on the mesothelioma claims. (Tr. at 83.) Hanly testified that the Mississippi settlement was not indicative of the exposure that T&N now faced as a stand-alone defendant. Ultimately, Hanly believed that the looming personal injury liability is what caused T&N and the Federal Mogul companies to seek Chapter 11 protection. (Id.) E. T&N's Litigation Experience in the United Kingdom Ms. Crichton testified as to the tactics used to defend lawsuits filed in the United Kingdom. The great majority of United Kingdom claims were brought by T&N employees on the legal theory that T&N did not provide a reasonably safe work environment. Crichton called these cases indefensible because it was not difficult for a claimant to prove that T&N breached its duty towards its employees. (Tr. at 160 (Crichton).) Similar to the early litigation strategy in the United States, T&N attempted to -20-

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settle legitimate claims as soon as possible. (Tr. at 152, 156.) Also similar was the requirement that a claimant demonstrate a disease caused by asbestos exposure and that they were exposed through the fault of T&N. (Tr. at 159.) To prove the first requirement, T&N required that claimants provide a report from a doctor who specialized in asbestos diseases. (Tr. at 164.) To satisfy the second requirement, T&N would look to its employment records for employee claims, or rely on the claimants statement, witnesses, and T&N documents for non-employee and product liability claims. (Tr. 162163.) F. Estimations of Liability Both parties offered an expert who estimated T&N's aggregate asbestos personal injury claims in the United States, both for (i) claims pending, but unpaid as of the Petition Date; and, (ii) the present value of future claims that can be expected to be filed after the Petition Date. Plaintiffs retained Dr. Mark Peterson, a lawyer with a doctorate in experimental social psychology, who is associated with the RAND Institute, and for over the last 20 years has been involved in studying the civil litigation system and the mass tort process in the United States. Dr. Peterson has been recognized as an expert in numerous asbestos estimation proceedings including: Eagle-Picher, National Gypsum, Babcock & Wilcox, Armstrong, Western Asbestos, H.K. Porter, E.J. Bartells Co., and Raytech. (See Pl. FOF ¶ 71.) The PD Committee proffered Dr. Robin Cantor, an economist who specializes in econometrics, statistical modeling and risk analysis. (Tr. at 834.) Dr. Cantor has -21-

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conducted numerous forecasts and statistical analysis for asbestos, environmental, and antitrust clients, as well as consulted in other asbestos estimation matters. (Tr. at 840.) Dr. Cantor currently serves as a Director of the Financial Insurance & Claims Services Practice of Navigant Consulting, Inc. ("NCI"), and leads NCI's Liability Estimation & Insurance Coverage Analysis practice. This group has responsibility for conducting asbestos liability estimates on behalf of a variety of clients, including, at present, six bankruptcy proceedings and five other asbestos-related matters. (PD Exh. 3; Tr. at 843.) Until this trial, Dr. Cantor had never been qualified as an expert on asbestos liability forecasting. (See Tr. at 856.) Dr. Peterson calculated two aggregate estimates for T&N's pending and future claims. The first is based on no increase in future claims, the second is based on an increase in future claims. Dr. Peterson's "No Increasing" projection for all pending and future claims put T&N's United States liability at approximately $8.2 billion at net present value. His "Increasing" projection, his preferred projection, placed T&N's United States liability at $11.1 billion. (Tr. at 523.) In addition, he estimated T&N's liability for present and future claims in the United Kingdom to be £229 million or (approximately $400 million USD). (Tr. at 561.) Dr. Cantor, in contrast, placed the net present value of all pending and future United States claims at $2.5 billion. (Tr. at 87879.) Neither the PD Committee nor Dr. Cantor estimated the aggregate liability in the United Kingdom because the claims "are only a small fraction of the United States claims, and will not significantly affect recoveries for property damage claimants." (See PD Exh. 2 at 4-5.) -22-

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1.

Pending United States Claims

It is undisputed that there are 396,649 total records in the T&N Database. (PD Exh. 2.) Dr. Peterson and Dr. Cantor agree on the premise that total liability is derived by the formula: [Number of Claims] X [Average Settlement Value] X [Percent Paid] = TOTAL LIABILITY Dr. Peterson looked to the T&N Database 9 and determined the pending claims for each type of disease: mesothelioma ("Meso"), lung cancer ("Lung"), other cancer ("Othc"), and nonmalignant disease ("Nonm"). (Tr. at 409-410.) Also, there was a number of unspecified claims ("Unsp"). The unspecified claim is most frequent among recently filed claims, and Dr. Peterson reallocated the number of pending claims based on the percentage of those open claims actually manifested into the disease that was originally alleged. (See Pl. Exh. 4 at slide 6.) Thus, what was originally 30,739 pending "Unsp" got reallocated, by disease based upon data in the T&N Database. (Id. at 7.) The total number of pending claims after reallocation is as follows: Description Realloc. Number Pending (Id.) Meso 3,002 Lung 4,891 Othc 2,080 Nonm 119,776 Unsp 4,487 TOTAL 134,235

The T&N Database collectively refers to the database maintained by CCR and the database that was maintained by T&N after it left the CCR until the Petition Date. -23-

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Dr. Cantor determined that there were 108,240 "Open Claims." (PD Exh. 2 at 9.) She segmented out 29,862 claims, the Settled But Not Yet Documented and Settled But Not Yet Paid claims, and included these in her closed claims amount. (Id.) If, however, these unpaid claims were included in her "Open Claims" number, the total would be 138,102. (See PD 2 at 9.) Dr. Cantor used the 108,240 number, and based upon the T&N Database, assigned each claim a disease category: Meso 1,703 Lung 2,188 Othc 741 Asbestosis 55,166 Pleural 3,054 Unknown 44,455 Other 933 TOTAL 108,240

(Id. at 10.) Dr. Cantor imputed data by "matching data" to the Johns-Manville Trust, or by using a transition matrix similar to that used by Dr. Peterson. (Id. at 10-11.) In sum, both experts place the number of unpaid, unresolved pending claims at approximately 135,000; however, Dr. Cantor uses the 108,240 number in her pending claims estimation. 2. Settlement Averages and Dismissal Rates

The second variable in the estimation formula is the settlement averages per disease. Each expert sought to estimate what the average cost to T&N would have been, by claim and disease category, had it not filed for bankruptcy. Dr. Peterson followed a four-step approach in estimating T&N's settlement values. (See Pl. Exh. 4 at slide 13.) First, he used the information in the T&N Database to calculate the historical settlement values for mesothelioma during the two years prior to the Petition Date (what he terms a "calibration period"). (Tr. at 427.) Because the database included both CCR and postCCR settlement values, Dr. Peterson testified that weighted consideration had to be given -24-

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to those settlements where T&N was a stand-alone defendant. (Tr. at 416-417.) Dr. Peterson, demonstrated this disparity in mesothelioma settlements below: Period Average Meso Payment (in 2001 dollars) Cumulative Percent Change 1997 (CCR) 1998 (CCR) 1999 (CCR) 2000 (CCR) 2001 (post-CCR) $43,635 $46,608 $60,936 $86,606 $138,939 NA 107% 140% 198% 318%

(See Pl. Exh 4 at slide 12.) To forecast a trend, he then calculated the estimated rate of continuing increase in the T&N settlement values by calculating the average of the 19971998 Meso settlements ($45,974--weighted for the number of settlements in each year) and the average of the 2000-2001 Meso settlements ($98,267­weighted), which resulted in a 214% increase. (Pl. Exh. 2 at 14.) He applied this rate to the $98,267 (the average for 2000-2001) and determined that the mesothelioma average was $210,291. (See Pl. Exh 4 at slide 15; Tr. at 427.) He then determined the relative average settlement values for all other diseases using T&N's historic settlement ratios between mesothelioma and the other disease (Tr. at 434-435), and compared these averages with the Owens-Corning and Babcox & Wilcox settlement averages. (See Pl. Ex. 4 at slide 17.) After applying these ratios, the settlement averages were: Lung $35,013: Othc $15,509, and Nonm $7,991, which he demonstrated were below the settlements observed in Owens-Corning

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and Babcox & Wilcox. (Id.) Dr. Peterson then compared these values to the Trust Distribution Procedure's Scheduled Values and determined that for simplicity these values should be used because they are relatively close, in fact lower, to the settlement averages: Meso $200,000; Lung $32,000; Othc $14,750; and Nonm $7,000. (See Pl. Ex. 4 at slide 18.) Finally, he calculated the average claim resolution amount, which is the product of the percent of claims paid by the average settlement amount (in 2001 dollars). (See Pl. Ex. 4 at slide 24.) Total pending liability was therefore determined by multiplying the number of pending claims for each disease category by the average resolution amount for each category, which Dr. Peterson concluded was $1.4 billion, as depicted below: Disease Meso Lung Othc Nonm Unsp Total (Pl. Exh. 4 at slide 25.) Dr. Cantor, on behalf of the PD Committee, used a weighted average of settlement values from the four years preceding T&N's bankruptcy (what she terms the "four year rolling average") as the benchmark for establishing the settlement averages by disease category. (Tr. at 883.) She observed no increasing trend in claim values for any diseases -26Reallocated Claims 3,002 4,891 2,080 119,776 4,487 134,236 Avg. Resolution $163,711 $27,630 $13,170 $6,242 $0 NA Indemnity ($mill) $491.5 $135.2 $27.4 $747.6 $0 $1,402

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over that four year period except for mesothelioma, which had an 18.3% annual increase. (Tr. at 884.) Hence, Dr. Cantor did not compute relative settlement averages on the other asbestos-related diseases, but rather, calculated the actual estimated average settlement value by disease for the four year period 1998-2001. Below are the settlement averages based upon her four-year rolling average: Meso 1998-2001 $68,866 Lung $13,011 OthC $5,664 Asbestosis $2,600 Pleural $915 Unknown $4,585

(See PD Exh. 2 at 18.) She used her base estimate, and then stepped up the mesothelioma averages for each of the first five years after the Petition Date; that is, ranging from $81,502 in 2002 and $159,886 in 2007. (Tr. at 895-6.) After year five, Dr. Cantor uses the $159,886 value for mesothelioma for every year of her forecast. (PD Exh. 2 at 31.) Dr. Cantor then computed the dismissal rate during the 1998-2001 base period. Although there were slight changes by disease, she concluded that the acceptance rate was generally 90 percent. (PD Exh. 2 at 33-34.) Dr. Cantor then took 10 percent off the 108,240 "Open Claims," resulting in 96,650 compensable claims, and multiplied this number by the settlement averages, for a total of $420.5 million net present value. (PD Exh. 2 at 38.) The settled but not yet decided and the settled but not yet paid claims totaled $139.9 million. Therefore, Dr. Cantor's aggregate estimate for unpaid pending claims is $560.4 million. 3. Future United States Claims

In forecasting the number of future claims, each expert had to use epidemiological models to predict disease incidence in the population, and then make adjustments based -27-

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on the T&N data. Dr. Peterson based his projections on the Nicholson study, and considered the observed trends in malignant claiming rates, the overall changes in the asbestos litigation landscape, the increased publicity of T&N, and the bankruptcies of other prominent asbestos defendants. (Tr. at 487.) Dr. Peterson then calculated T&N's historic propensity to sue­ the percentage of people who actually filed (or will file) a claim against T&N ­ by dividing the number of people who actually filed a claim against T&N for mesothelioma by the number of overall mesothelioma deaths as predicted by the Nicholson model for that same year. (Tr. at 499500; Pl. Exh. 2 at 27.) The propensity to sue calculation was derived from his two-year calibration period (or base period). (Tr. at 504.) Dr. Peterson made two alternate assumptions: (1) a No-Increasing projection, which assumed the propensity to sue would remain unchanged in future years; and, (2) an Increasing propensity projection, which assumed that the propensity to sue T&N would increase during 2002 through 2006, in accordance with the trend in claims filings observed in the years immediately prior to the Petition Date, and then level off thereafter. (Tr. at 504.) The Increasing model is Dr. Peterson's preferred projection. (Tr. at 505.) Finally, Dr. Peterson used the formula: [Propensity to Sue] X [Incidence in Future Year] = Projected Future Claims There is no comparable peer-reviewed study, like the Nicholson study, which predicts the incidence of nonmalignant asbestos-related disease. (Tr. at 491-92.) Dr. Peterson explained that these diseases are progressive diseases, and therefore, claims projections cannot be derived from epidemiological evidence. (Pl. Exh. 2 at 35.) -28-

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Nevertheless, Dr. Peterson states that relationship between cancer and nonmalignant claims filings is "one of the most common patterns in asbestos litigation." (Id. at 36.) Thus, Dr. Peterson calculated the ratio between the number of cancer claims and the number of nonmalignant claims filed against T&N in 2000. (Tr. at 492.) He did not use the 2001 data because it was 50 percent greater than the 2000 ratio. (Pl. Exh. 2 at 36.) He derived a nonmalignant multiplier of 10.19, which he used to predict the number of nonmalignant claims for each future year. (Tr. at 514.) To calculate the total value of future United States claims, Dr. Peterson used the same settlement averages per disease that were used in the pending claims calculation. (Tr. at 520.) As to nonmalignant claims, Dr. Peterson also asserts two assumptions. In his Increasing assumption, which coincides with his Increasing model for propensities to sue, he assumed that the ratio of nonmalignance to cancer claims would be 11 percent greater than the base period. (Pl. Exh. 2 at 36.) This increase was based upon the general experience of asbestos defendants in the 1990s, specifically using the filing experience of the Manville and UNR trusts. (Id.) His no increase assumption assumes that the ratio of nonmalignant cancers will be similar to that of his 2000 base period. (Id.) Combining his increasing propensity to sue, and corresponding increase in nonmalignant claim filings, Dr. Peterson predicted that T&N would face 1,088,440 future asbestos personal injury claims. (Id. at 38, Table 20.) Under his No Increasing model, Dr. Peterson predicted the number of future claims at 706,779. (Id.) Dr. Peterson assumed that future settlements would occur two years after the claims were filed, a 2.5 -29-

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percent inflation rate (a historical inflation rate over the last decade), and a 5.02 percent "risk-free" rate of return to discount the future costs to net present values. (Tr. at 520.) The inflation and interest rates were obtained by L. Tersigni Consulting, the financial experts for the ACC. (See Pl. Exh. 2 at 39.) Thus, he estimated that the aggregate future liability for the United States claims would be $9.7 billion (Increasing) and $6.8 billion (No-Increasing). Dr. Cantor did not use the Nicholson study, but used a model developed by her consulting firm (the "NCI model") to determine the incidence of mesothelioma deaths in the eight industries in which the use of Limpet was primarily involved. (PD. Exh. 2 at 20; Tr. at 965-66.) She then applied a dose-response formula developed by the Occupational Safety and Health Administration ("OSHA"), to the exposed population to estimate the future annual incidence of mesothelioma deaths. (PD Exh. 2 at 24;Tr. at 968.) Incidence of other malignant diseases were determined by using a report created by KPMG Peat Marwick (hereinafter the "KPMG model"). (See PD Exh. 2 at 25.) For nonmalignant claims, Dr. Cantor derived a ratio from the compensable nonmalignant claims to compensable malignant claims from her four-year base period (1998-2001), which was 12.9 to 1. (Id. at 26.) She did not escalate this rate for the future claims because she testified there was no evidence in the T&N Database, or in the experience of other asbestos trusts to support an increase in nonmalignant claims filings. (Id. at 26-27.) Dr. Cantor did conduct two sensitivity analyses. First, she factored in the other three Nicholson industry areas: auto mechanics, primary asbestos manufacturing -30-

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and secondary asbestos manufacturing, which resulted in a modest increase in her estimate from $2.485 to $2.586 billion. (PD Exh. 2 at 46.) Second, she used the KPMG incidence tables for mesothelioma, instead of the NCI model, and came to a nominally higher estimate of $2.592 billion. (PD Exh. 2 at 47.) Like Dr. Peterson's "propensity to sue" analysis, Dr. Cantor conducted "compensability" analysis, which is calculated as the sum of compensated closed claims and the estimate of compensable pending claims during her four-year base period divided by the incidence of disease mortality over the same period. (PD. Exh 2 at 34.) Dr. Cantor first observed that 72% of compensated closed and pending cases in the T&N database had death year information. (Tr. at 974.) She then imputed death year information for 28% of claimants based on "a set of ordered rules and assumptions about the relationship of the filing date to the death date." (Id.) She calculated the compensability rates for mesothelioma (36.9%), lung cancer (19.5%) and other cancers (28.4%). (Pl. Exh. 2 at 37.) Under this "death year" approach, the compensability rate from the four-year base period was applied to future incidence of specific diseases, resulting in a forecast of 372,907 claims from the Petition Date till the year 2054. (Id. at 36-39.) Dr. Cantor employed several sensitivities that resulted in a range of $1.9 billion to $3.4 billion for her aggregate estimate. She was of the opinion that changes in state laws, in particular Mississippi, Texas and Ohio, support her relatively lower settlement averages. (See PD Exh. 3.) Further, she compared the experiences with H.K. Porter and the Manville Trust, which indicated that the number of asbestos filings is trending downward, and believes that data supports her relatively lower estimate. -31-

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Dr. Cantor also assumed an inflation figure for future claims at 2.2%, which is based upon the United States Congressional Budget Office's estimated long term inflation rate in the Consumer Price Index. (PD Exh. 2 at 37.) She used a 5.5% "risk-free" discount factor to compute T&N's present value of liabilities that is based on the 30-year treasury bond estimates published annually by the United States Office of Management and Budget. (Id. at 37-38.) Dr. Cantor, however, notes that economic theory would support an even larger discount rate to "reflect the risk of the future cash flows anticipated by claimants at the time they were injured." (Id. at 38.) 4. Aggregate Liability in the United Kingdom

Dr. Peterson was the only expert that forecasted the pending and future liability in the United Kingdom. Dr. Peterson testified that he employed the same methodology that was used in forecasting T&N's liability in the United States (Tr. at 558.) Because T&N was the dominant asbestos defendant in the United Kingdom, Dr. Peterson testified that he distinguished between claims where T&N had sole liability, and those where T&N had shared liability. (Tr. at 550-551, 553.) He considered the fact that T&N had far fewer claims than the United States, stable settlement values, and timing differences in epidemiology and asbestos exposure. (Tr. at 553-56.) Also, Dr. Peterson testified that the United Kingdom data did not support an increase in the propensity to sue. (Tr. at 557.) Thus, Dr. Peterson considered that average settlement values for mesothelioma, other cancer, asbestosis, and pleural disease, both for cases where there was shared liability and sole liability, and computed average resolution values based upon historical -32-

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payment percentages during the 1998-2001 base period. (See Pl. Exh. 4 at 49.) He predicted that there would be 21,125 future claims against T&N in the United Kingdom (see Pl. Exh. 4 at slide 52), and forecasted the total liability for present and future claims in the United Kingdom at £229 million (approximately $400 million USD) (Tr. at 561.). The breakout by disease is depicted below in millions of £s. Claims Pending Future All Claims Meso £8 £121 £129 Othc £1 £8 £9 Asbestosis £3 £52 £55 Pleural D. £2 £34 £36 Total £14 £215 £229

(See Pl. Exh. 4 at slide 54.) G. Plaintiffs' Criticisms of Dr. Cantor's Methodology Plaintiffs take issue with several aspects of Dr. Cantor's methodology concerning future claims, which they argue make her estimates downwardly biased. It is argued that she mistakenly uses "death years" to count compensable claims filed during her four-year calibration period (1998-2001). Instead of counting the claims filed in a given year, and using that as a basis to project future compensable claims, Plaintiffs argue that Dr. Cantor erroneously imputed a death year to the claimants in her calibration period. She did this, in part, by using the claim payment date as a proxy for the date of death. Because the claim payment date is on average two years or more longer than the date of death, it is argued that Dr. Cantor's calibration period is flawed because it did not factor: (1) persons who made claims against T&N, but have not yet died, and (2) persons who have died -33-

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before the Petition Date, yet filed claims afterward. (Tr. at 1184-1190 (Peterson Rebuttal).) Thus, Plaintiffs argue that Dr. Cantor's death year methodology ignored over 30 percent of the cancer claims made during the calibration period. (Pl. FOF ¶95.) Also, Plaintiffs state that she excluded certain industries from her projection, even though T&N either directly, or through its subsidiary Keasbey, exposed persons in these industries to asbestos. (Tr. at 1101-1104.) Plaintiffs state that the recent mesothelioma filings against T&N in 2001 and T&N's resolution history do not support Dr. Cantor's projections. Dr. Cantor testified that in 2001, 1,252 new mesothelioma claims were filed against T&N, which was up from the 900 new claims averages from 1998 and 1999. (Tr. at 1109-1110.) Plaintiffs contend that when you consider the 90% resolution rate, Dr. Cantor's 2002 projection of 660 compensable mesothelioma claims (a 40% drop from 2001) cannot be supported by either T&N's claims history, any epidemiological model, or events after the Petition Date. (Pl. FOF ¶ 96.) In addition, her future projections are contrary to the total number of filings against T&N before the Petition Date. Dr. Peterson testified that from a level of 18,000 new claims in 1995, the filings rose steadily to a annualized amount of approximately 60,000 new filings in 2001. (See Pl. Exh. 2 at 28.) Yet, Dr. Cantor projects only 23,706 compensable claims in 2002, a one-third drop from 2001 and a figure that is fewer than any year since 1997. (See PD Exh. 2 at 39.) Therefore, Plaintiffs argue that Dr. Cantor underestimates future filings.

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Dr. Cantor's classifications of the disease for future claims is also questioned. Plaintiffs argue that Dr. Cantor failed to use transition data­that is, allocating a disease to a unspecified disease in the T&N database based on historical ratios­ to estimate her future claims. Dr. Cantor testified that the use of untransitioned data shows that there is no increase, or even a decrease, in malignant claims over T&N's claims history. (Tr. at 1093 (Cantor).) Instead, Plaintiffs posit that Dr. Peterson's method, use of transitioned data is more reflective of T&N's litigation experience, which according to Hanly shows a marked increase in malignant claims. (Tr. at 79-82.) Plaintiffs also dispute the settlement averages that Dr. Cantor used for each disease. For example, she calculated a settlement average of $102,000 for mesothelioma in 2001, yet uses a $68,886 base line to compensate all pending mesothelioma claims. (Tr. at 1117-1118.) Plaintiffs rely on Hanly's testimony that T&N experienced a 75% increase in settlement values for mesothelioma claims between 2000 and 2001, and that T&N was settling claims in 2001 for over $130,000 (see Tr. at 81-82 (Hanly)) to demonstrate that Dr. Cantor's assertion, that T&N would be able to resolve claims cheaper out of the CCR than in the CCR, is inaccurate. Further, Plaintiffs contend that of the other asbestos defendants Dr. Cantor considered in her side-by side comparisons, she failed to fully appreciate the Union Carbide experience, which more closely resembled T&N's experience as it left the CCR at the same time as T&N. (See Tr. at 1170 (Cantor).) Yet, Dr. Cantor admitted that the number of claims filed against Union Carbide, and the costs to resolve those claims, -35-

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"skyrocketed" from 2001 to 2003. (Tr. at 1172.) On cross-examination, Dr. Cantor admitted that according to Union Carbide's Form 10-Ks, there were 73,806 claims filed in 2001 (when it left the CCR), 121,916 claims in 2002, and then 122,586 in 2003. (See Tr. at 1169.) Likewise, Dr. Cantor acknowledged that Union Carbide's indemnity costs went from $39 million in 2001, to $155 million in 2002, to $293 million in 2003, then to $300 million in 2004. (Tr. at 1168-70.) Hence, Plaintiffs insist that Dr. Cantor's argument that filings and costs were trending downward, when compared with a similarly situated post-CCR member, is inconsistent with the factual record. H. Defendant's Criticisms of Dr. Peterson's Estimate The PD Committee questions Dr. Peterson's estimate on the grounds that his estimate of $11.1 billion is not on par with other estimates of T&N's total aggregate liability. Defendant observes that advisors to the United Kingdom pension trustee ("Tillinghast") have estimated T&N's aggregate liability at between $2.1-$5.1 billion. (See PD FOF ¶ 90.) The estimation consultants to the UK administrators ("EMB") calculated aggregate liability at $5.3 billion, and also characterized Dr. Peterson's claim values and propensity to sue numbers as "overstated." (See Pl. Exh. 16 at4-5.) Also, the PD Committee points to Dr. Peterson's own shifting estimate of liability: first at $6.7 billion (see PD Exh. 14), then $5.6 billion (PD Exh. 14), and finally at $11.1 billion. Dr. Cantor also points out that an estimate provided by the National Economic Research Associates ("NERA") in 2001 and reported in Federal-Mogul's Form 10-K filed on December 31, 2000 (the last 10-K before the bankruptcy filing) estimated that the aggregate liability for all the Federal-Mogul entities at $1.8 billion. (PD. Exh. 2 at 6-7.) -36-

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Defendant attacks two central premises of Dr. Peterson's increasing estimate: (1) that there will be an increasing propensity to sue for cancers during the first five years of the forecast period, and (2) the ratio of claims for nonmalignant diseases to cancers will similarly increase. Thus, under the increasing model, Dr. Peterson estimates that there will be 1.1 million future claims, which Defendant states is nearly triple the 380,000 that have been filed against T&N in the 21 years before its bankruptcy. (See PD FOF ¶ 90.) The PD Committee reduces the nearly $9 billion dollar gulf between Dr. Cantor's and Dr. Peterson's estimate to two factors (1) higher settlement averages per disease and (2) the increasing claiming rates on which Dr. Peterson's increasing estimate is based. Defendant submits that Dr. Cantor's calculation of settlement averages based on historic settlements over her four-year calibration period is superior to the overstated Trust Distribution Procedures ("TDPs") that Dr. Peterson relies on. Dr. Peterson's settlement average per disease is significantly higher than they were in 2001. The settlement averages represent a 36% increase in mesothelioma claims, a 59% increase for lung cancer, a 204% increase for other cancers, and a 410% increase for nonmalignant diseases. (Tr. at 598-99, 608-610.) The PD Committee also questions Dr. Peterson's claiming rates that are established in his Increasing model. While Dr. Cantor acknowledges that claims against T&N rose sharply from 1997 (22,000 claims) to the first nine months of 2001 (44,700 claims), she disagrees with Dr. Peterson's projection that T&N will face in excess of 40,000 claims through the year 2015. Moreover, Dr. Peterson puts the peak year for -37-

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cancer claims at 2006, which is 43% higher than what T&N actually experienced in 2001. (See Tr. at 781 (Peterson).) This increase, the PD Committee argues, is not attributable to any increase in malignant disease incidence because both the Nicholson model and the KPMG model (establishing peak mesothelioma incidence in 1997, and all cancers in 1990) do not show this continued increase. (See PD Exh. 2 at A-2; Tr. at 766-768.) Additionally, Defendant contends that the myriad of legal reforms now in effect, or being proposed, will also drive down the claiming rates of nonmaliganant claims. III. CONCLUSIONS OF LAW

A. Procedural History and Jurisdiction On June 16, 2004, the Chief Judge of the United States Court of Appeals for the Third Circuit designated this Court to sit on the United States District Court for the District of Delaware in the Federal-Mogul bankruptcy case. On December 2, 2004, the Debtors filed a motion pursuant to 11 U.S.C. Section 105(a) for an Order (I) Clarifying District Court Judge Wolin's December 10, 2001 Order, and (II) Delineating the Respective Roles of the District Court and the Bankruptcy Court With Respect to Asbestos Estimation and Plan Confirmation Matters in these Cases, which sought withdrawal of the reference to this Court from the Bankruptcy Court of both the asbestos personal injury claims estimation and the Plan confirmation proceedings. (Docket No. 6517, Bankr. No 01-10578 (RTL).) On January 14, 2005, the PD Committee filed a statement in support of the Withdrawal Motion. (Docket No. 6830, Bankr. No 01-10578 (RTL).) -38-

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Following a hearing on January 25, 2005, this Court entered an Order that granted a withdrawal of the reference with respect to the estimation hearing pursuant to 28 U.S.C. § 157(d), but reserved decision on whether to withdraw the reference as to Plan confirmation. This Court has jurisdiction over the estimation of asbestos personal injury claims under 28 U.S.C. §§ 1334 and 157. B. English Law Considerations In an attempt to efficiently and thoroughly resolve the liability concerns in the United States, Plaintiffs have also submitted evidence that it hopes will provide some persuasive reference to the concurrent administration (bankruptcy) proceedings in the United Kingdom. Recently, the English solicitors for the Administrators of the English companies in the Federal-Mogul Group (the