UNITED STATES BANKRUPTCY COURT DISTRICT OF DELAWARE . . . . . . . . . . . . . . . IN RE: . . SPECIALTY PRODUCTS HOLDING . CORPORATION, et al., . . Debtors. . . . . . . . . . . . . . . . .

SPECIALTY PRODUCTS HOLDING . CORP., BONDEX INTERNATIONAL,. INC., . . Plaintiffs, . . v. . . THOSE PARTIES LISTED ON . EXHIBIT A TO COMPLAINT AND . JOHN AND JANE DOES 1-1000, . . Defendants. . . . . . . . . . . . . . . . .

Case No. 10-11780(JKF)

Adv. Pro. No. 10-51085(JKF)

5414 U.S. Steel Tower 600 Grant Street Pittsburgh, PA 15219 January 7, 2013 8:38 a.m.

TRANSCRIPT OF ASBESTOS LIABILITY ESTIMATION TRIAL BEFORE HONORABLE JUDITH K. FITZGERALD UNITED STATES BANKRUPTCY COURT JUDGE

Audio Operator:

Janet Heller

Proceedings recorded by electronic sound recording, transcript produced by transcription service ______________________________________________________________ J&J COURT TRANSCRIBERS, INC. 268 Evergreen Avenue Hamilton, New Jersey 08619 E-mail: jjcourt@jjcourt.com (609) 586-2311 Fax No. (609) 587-3599

2 APPEARANCES: For the Debtor: Jones Day By: GREGORY GORDON, ESQ. DANIEL B. PRIETO, ESQ. THOMAS R. JACKSON, ESQ. 2727 North Harwood Street Dallas, TX 75201 Evert, Weathersby, Houff By: C. MICHAEL EVERT, JR., ESQ. 3405 Piedmont Road, Suite 200 Atlanta, GA 30305 Evert, Weathersby, Houff By: EDWARD F. HOUFF, ESQ. 120 E. Baltimore Street, Suite 1300 Baltimore, MD 21202 For the Committee of Asbestos Personal Injury Claimants: Montgomery, McCracken, Walker & Rhoads By: NATALIE RAMSEY, ESQ. MARK B. SHEPPARD, ESQ. K. CARRIE SARHANGI, ESQ. KATHERINE M. FIX, ESQ. 123 South Broad Street Philadelphia, PA 19109 Montgomery, McCracken, Walker & Rhoads By: MARK FINK, ESQ. 1105 North Market Street Wilmington, DE 19801 Motley Rice LLC By: NATHAN D. FINCH, ESQ. 1000 Potomac St. NW, Suite 150 Washington, DC 20007 Waters Kraus Paul By: SCOTT L. FROST, ESQ. 222 N. Sepulveda Blvd., Suite 1900 El Segundo, CA 90245

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3 APPEARANCES (Cont'd): For Future Claimants Representatives: Young Conaway Stargatt & Taylor LLP By: EDWIN J. HARRON, ESQ. SHARON ZIEG, ESQ. JOHN T. DORSEY, ESQ. ERIN EDWARDS, ESQ. The Brandywine Building 1000 West Street, 17th Floor Wilmington, DE 19801 Thorp, Reed & Armstrong By: WILLIAM M. WYCOFF, ESQ. JERRI A. RYAN, ESQ. One Oxford Centre 301 Grant Street, 14th Floor Pittsburgh, PA 15219

For RPM International:

TELEPHONIC APPEARANCES: For the Debtors: Jones Day By: JOHN H. CHASE, ESQ. 2727 North Harwood Street Dallas, TX 75201 Richards, Layton & Finger, P.A. By: DANIEL DeFRANCESCHI, ESQ. ZACHARY SHAPIRO, ESQ. 920 North King Street Wilmington, DE 19801 For the Committee of Asbestos Personal Injury Claimants: Montgomery, McCracken, Walker & Rhoads By: LAURIE KREPTO, ESQ. DAVIS L. WRIGHT, ESQ. 123 South Broad Street Philadelphia, PA 19109 Otterbourg, Steindler Houston & Rosen, P.C. By: ANDREW M. KRAMER, ESQ. ROBERT GONNELLO, ESQ, 230 Park Avenue, 29th Floor New York, NY 10169

For Wachovia Capital Finance Corp.:

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4 TELEPHONIC APPEARANCES (Contd): For the U.S. Trustee: Office of the U.S. Trustee By: RICHARD L. SCHEPACARTER, ESQ. J. Caleb Boggs Federal Building 844 King Street, Suite 2313 Lockbox 35 Wilmington, DE 19801 McDermott Will & Emery By: NAVA HAZAN, ESQ. 340 Madison Avenue New York, NY 10173 Bondex By: JACK FLEMING The Blackstone Group By: JAMIE OCONNELL PAUL SHEAFFER DANIEL CASIERO 345 Park Avenue New York, NY 10154 Klehr, Harrison, Harvey & Branzburg By: DOMENIC PACITTI, ESQ. 919 Market Street Wilmington, DE 19801 Orrick, Herrington & Sutcliffe By: JONATHAN P. GUY, ESQ. KATHLEEN A. ORR, ESQ. RICHARD H. WYRON, ESQ. 1152 15th Street, N.W. Washington, D.C. 20005 Hughes, Hubbard & Reed LLP By: LAUREN ASCHER, ESQ. One Battery Park Plaza New York, NY 10004 Interested Party, Dryvit Systems: For Asbestos Plaintiffs: Dryvit Systems By: NIKKI WAKEMAN James F. Humphreys & Associates By: BRONWYN RINEHART, ESQ. United Center, Suite 800 500 Virginia Street East Charleston, WV 25301 ---

For Honeywell:

For Bondex: Financial Advisors for the Debtors:

Interested Party:

Interested Party:

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5 I N D E X OPENING STATEMENTS By Mr. Gordon By Ms. Ramsey By Mr. Harron WITNESSES FOR THE DEBTOR KELLY TOMPKINS, ESQ. Direct Examination by Mr. Jackson Cross Examination by Mr. Sheppard Redirect Examination by Mr. Jackson Recross Examination by Mr. Sheppard DENISE MARTIN, Ph.D. Direct Examination by Mr. Evert Voir Dire Examination by Mr. Dorsey Direct Examination by Mr. Evert Cross Examination by Mr. Dorsey Cross Examination by Mr. Finch Redirect Examination by Mr. Evert Recross Examination by Mr. Dorsey Recross Examination by Mr. Finch CHARLES MULLIN, Ph.D. Direct Examination by Mr. Evert Voir Dire Examination by Mr. Sheppard Direct Examination by Mr. Evert EXHIBITS Debtors-96 D-6 D-7 D-22 D-23 D-8 ACC-1000 D-28 D-27 D-29 D-21 E-113 E-165 E-171 E-426 D-19 D-97 D-9 D-10 C.V. - Denise Martin, Ph.D. Report - D. Martin Rebuttal Report - D. Martin U.S.G. Memo - 1/28/76 Report - John Mansville -1974 Chart - D. Martin Nicholson Study Georgia Pacific Correspondence 7/6/77 Georgia Pacific Manual U.S. Gypsum Pamphlet Document Document Document Document Document Document CV - Charles Mullin, Ph.D. Report - C. Mullin Rebuttal Report - C. Mullin ID. --156 156 166 169 180 212 216 217 217 ------------228 228 228 PAGE 24 45 63

66 101 142 144 146 149 152 184 207 215 218 219 227 233 243 EVD. 146 184 ----------220 220 220 220 221 221 221 221 221 228 228 228

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6 I N D E X EXHIBITS ACC-1001 D-1 D-11 D-12 D-13 D-14 D-18 D-15 (Contd) PAGE Deposition - C. Mullin - 11/15/12 Historical Claims Database Graph Graph Graph Graph Logan PIQ Database Graph ID. 241 --251 256 261 264 270 273 EVD. --250 --------270 ---

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7 1 THE COURT: This is the matter of Specialty Products

2 Holding Corporation, Bankruptcy Number 10-11780 pending in the 3 District of Delaware. This is the time set for the

4 confirmation -- Im sorry, the estimation on the confirmation 5 of the plan, the estimation of asbestos liability on behalf of 6 the estate. 7 I have a number of people participating in a

8 listen-only mode by phone: Lauren Ascher, Dan Casiero, John 9 Chase, Daniel DeFranceschi, Jack Fleming, Robert Gonnello, 10 Jonathan Guy, Nava Hazan, Andrew Kramer, Laurie Krepto, Jamie 11 OConnell, Kathleen Orr, Domenic -- I'm sorry -- I think it's 12 P-a-c-i-t-t-i, Bronwyn Rinehart, Richard Schepacarter, Zachary 13 Shapiro, Paul Sheaffer, Nikki Wakeman, Davis Wright and Richard 14 Wyron. 15 And Ill take entries in court, please. MR. GORDON: Good morning, Your Honor, Greg Gordon, Michael

16 Dan Prieto, Jones Day, on behalf of the debtors.

17 Evert, Ed Houff, Evert Weathersby & Houff on behalf of the 18 debtors. And Ive also overlooked Tom Jackson, Jones Day, on

19 behalf of the debtors. 20 21 THE COURT: MS. RAMSEY: Thank you. Good morning. Natalie

Good morning, Your Honor.

22 Ramsey, Mark Sheppard, Mark Fink, Katherine Fix and Carrie 23 Sarhangi from Montgomery, McCracken, Walker & Rhoads on behalf 24 of the Committee. 25 THE COURT: Who was the last, Im sorry?

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8 1 2 3 MS. RAMSEY: THE COURT: MS. RAMSEY: Carrie Sarhangi, S-a-r-h-a-n-g-i. All right. Thank you.

And also with us are Nathan Finch from

4 Motley Rice, and Scott Frost from Waters and Kraus, Your Honor, 5 our special counsel. 6 7 8 THE COURT: MR. HARRON: THE COURT: All right. Thank you. Mr. Harron.

Good morning, Your Honor. Theyve beaten you up already. We

9 havent even started yet. 10 MR. HARRON: Im an example of why you dont take the And I bow to the Courts

11 kids skiing a week before trial.

12 indulgence in my hobbling to the lectern not counting against 13 our trial time. 14 THE COURT: Youre certainly able to stay seated to

15 and address me from -- as long as youre by a microphone, Mr. 16 Harron, you dont need to stand. 17 18 that. 19 20 THE COURT: MR. HARRON: Okay. With me from Young Conaway for the MR. HARRON: Thank you, Your Honor. I appreciate

21 Future Claimants Representatives are John Dorsey, Sharon Zieg 22 and Erin Edwards. 23 24 Thank you. Thank you. Good morning. Bill Wycoff

THE COURT: MR. WYCOFF:

Good morning, Your Honor.

25 and Jerri Ryan, Thorp Reed & Armstrong on behalf of RPM

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9 1 International. 2 THE COURT: Thank you. Anyone else wish to enter an

3 appearance? 4 5 6 THE COURT: MR. GORDON: (No audible response) Mr. Gordon. Good morning again, Your Honor. I

7 thought Id begin with a housekeeping item.

I guess theres One

8 really two housekeeping items to mention at the moment.

9 is, I think we have someone outside with the chess clock, which 10 doesnt seem to be working right at the moment. 11 well have that remedied shortly. So, hopefully,

And then the second thing

12 that I wanted to advise Your Honor of as a housekeeping matter 13 is that weve had several more meet and confer conferences with 14 the other side with respect to exhibits. I think as Your Honor

15 may remember, we were all in a rush to get the pretrial order 16 done in advance of the prior hearing. And we had indicated to

17 Your Honor we were going to continue to meet and confer to try 18 to reach agreement with respect to the last -- with respect to 19 objections to exhibits and the like, and we actually made 20 considerable progress in that regard. 21 And I have with me this morning a set of our -- or

22 copies of our exhibit list with the remaining objections noted. 23 And I think youll be pleased to see theres relatively few 24 objections that are left. And I believe the other side has

25 their list of exhibits, as well, with our objections noted on

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10 1 their list, as well. And, again, youll see, I think, the We all

2 large majority of the objections have been withdrawn.

3 have reserved the objections to relevance, as Your Honor 4 indicated we should, and that, obviously, made sense. But,

5 otherwise, youll see that the other objections, hearsay, best 6 evidence and the like, for the most part, authentication, have 7 all, for the most part, been resolved. 8 THE COURT: All right. Okay. Im going to hand up our set. Please. Do you guys have a set? Yes, were digging it out now, Your Do I have a set -- oh, youre

9 going to hand up a set. 10 11 12 13 14 Honor. 15 MR. EVERT: MR. GORDON: THE COURT: MR. GORDON: MR. HARRON:

Your Honor, this is a list.

Your set

16 that you were delivered, its the same numbers on this list, 17 its just a lot less exhibits. 18 19 20 THE COURT: MR. EVERT: MR. GORDON: Okay. Does that make sense? In other words, to be clear, we havent What youll see is in a

21 changed any of the exhibit numbers.

22 number of cases weve indicated exhibits that have been 23 withdrawn. 24 25 THE COURT: MR. GORDON: Okay. And then weve added a column for the

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11 1 objections indicating where the objection still exists. And if

2 the column is blank, that means, obviously, there is no pending 3 objection, other than, again, relevance objections have been 4 preserved. 5 THE COURT: Okay. If I can see it, it will probably

6 make more sense. 7 8 MR. GORDON: THE COURT: May I approach? Please. Thank you. So, in other words,

9 for example, just to pick one, Exhibit 2 that says its 10 withdrawn, somewhere in these binders I have an Exhibit 2, but 11 youre not going to use it anymore, so I dont need to worry 12 about reading it? 13 14 15 MR. GORDON: THE COURT: Thats correct, Your Honor. Okay. Mr. Sheppard. Mark Sheppard

MR. SHEPPARD:

Thank you, Your Honor.

16 on behalf of the ACC. 17 We also have our exhibit list, Your Honor. And as

18 Mr. Gordon said, youll see that many of these objections have 19 been resolved. 20 21 22 23 THE COURT: All right. If I may hand that up, Your Honor.

MR. SHEPPARD: THE COURT:

Please. Your Honor, youll also -- we redid

MR. SHEPPARD:

24 your binders and we put them up there with just the documents 25 that, again, that we expect to use in the courtroom here, as

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12 1 opposed to the much longer trial list that we had provided to 2 the Court earlier. 3 THE COURT: Thats these five binders that were

4 presented this morning, correct? 5 6 MR. SHEPPARD: THE COURT: Thats correct, Your Honor. The rest of the exhibits, though,

Okay.

7 Mr. Sheppard, are not necessarily withdrawn, its just that at 8 this point you dont expect to use them. The only ones that

9 would be withdrawn are if theyre marked on your list as 10 withdrawn, then youre not going to use them? 11 MR. SHEPPARD: Were not going to use them in the I think that the parties -- and Mr.

12 courtroom, Your Honor.

13 Evert can jump in here -- the parties have a general agreement 14 with regard to certain categories of records, including the 15 standard discovery package that was used by Bondex in the tort 16 system with certain Bates numbers that were produced, certain 17 documents that were produced by the debtors. Generally, we

18 have agreed that the same objection agreements that weve 19 reached apply, with the exception of relevance, and the parties 20 reserve the right to supplement the record in their post-trial 21 briefing with regard to those kinds of records. That would

22 also include, Your Honor, the PIQs -- what other big categories 23 do we have? 24 THE COURT: So youre going to argue about some

25 exhibits in the post-trials, but you dont expect to have any

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13 1 evidence about them during the trial? 2 MR. SHEPPARD: Yes, Your Honor. At the close of our

3 case, we intend to offer those documents, or certain of those 4 documents that are on our longer list for purposes of using 5 those in the post-trial briefing. That, of course, would be And its our understanding

6 subject to the debtors objections.

7 that then the Court would take those for, you know, whatever 8 they were worth. 9 10 get there. 11 THE COURT: All right. MR. DORSEY: Okay. I guess well deal with it when we

Thank you. Good morning, Your Honor. John Dorsey

12 for the FCR.

I just wanted to make sure that the Court

13 understood that the list that Mr. Sheppard has handed up is a 14 joint FCR/ACC list. 15 16 17 THE COURT: MR. WYCOFF: Yes, I understand that. Thank you.

Your Honor, Bill Wycoff.

During the conferences there are a number of

18 documents from RPM International that we have not objected to 19 as to authenticity and such and that we have stipulated with 20 the other side. And we just wanted the record to reflect that

21 theyre admissible if you admit them here, but they are not 22 admissible for purposes of any other litigation or matter that 23 should occur. 24 25 THE COURT: MR. WYCOFF: All right. Thank you.

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14 1 2 3 4 MR. SHEPPARD: THE COURT: Okay. Thats correct, Your Honor.

Thank you. It is. Okay.

Is the clock working?

I think I may have done something that shut it off.

5 I had a screen that popped up and didn't know what it was and 6 clicked out of it. 7 8 clock. 9 10 THE COURT: Oh, okay. Yeah, just -- we'll just go Do I need to put it back up? No, this is a separate manual

UNIDENTIFIED ATTORNEY:

UNIDENTIFIED ATTORNEY:

11 ahead and explain how it works. 12 13 clock. 14 UNIDENTIFIED ATTORNEY: It's literally a chess type

It's literally a chess clock with -UNIDENTIFIED ATTORNEY: It's set, Your Honor, to

15 count down from 17 and a half hours for each side. 16 THE COURT: Well, is it something that Jan should be

17 using or Mona? 18 able to do it. 19 20

I don't know whether the court recorder will be

UNIDENTIFIED ATTORNEY: UNIDENTIFIED ATTORNEY:

It doesn't matter to us. Well, maybe it's better for

21 Mona to do it, Your Honor, because -- Jim -- Jim, it may be 22 better. 23 THE COURT: Jan, are you able to do this while you're

24 -- are you able -25 AUDIO OPERATOR: It doesn't matter. It doesn't

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15 1 matter. 2 UNIDENTIFIED ATTORNEY: Whatever is easier on the

3 Court, Your Honor, is fine with us. 4 THE COURT: Well, it doesn't me, but it will affect

5 them, so whoever can best pay attention to it, I think -6 UNIDENTIFIED ATTORNEY: That may ultimately affect

7 you, Your Honor. 8 THE COURT: I'm sorry, I couldn't hear what's --

9 Well, I think we agreed early on that it was an hour. 10 UNIDENTIFIED ATTORNEY: A half hour projections each

11 day was not charged to anybody, so it should just be paused for 12 that. 13 14 15 16 THE COURT: Do you want to do it? I don't have a problem.

AUDIO OPERATOR: THE COURT:

I guess Jan will be -Your Honor, we've all agreed

UNIDENTIFIED ATTORNEY:

17 to try to help you. 18 19 THE COURT:

We'll give you a high sign. (Pause) Could you do a test for me while they're

20 doing this, because I've got something that says I have a new 21 account. 22 23 THE COURT: Could you do a test for me while they're -(Pause) All right. Are we all set to go now?

24 Are you on the clock, Mr. Gordon? 25 MR. GORDON: I dont know, Your Honor. I have taken

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16 1 some speed speaking courses for this trial, so I think Im 2 ready to go. 3 Your Honor, you may remember that as part of our

4 agreement with respect to how to go forward with this 5 estimation hearing, that each side reserve the right to make an 6 opening statement. And the debtors are prepared to make an

7 opening statement, and I would like to do that. 8 9 THE COURT: MR. GORDON: Thats fine. Initially, Your Honor, Id like to set

10 the legal framework, and Ill do this briefly in light of the 11 argument weve already had. The estimation of the liability

12 is, obviously, pursuant to Section 502(c) of the Bankruptcy 13 Code. And as the Court knows, thats an abbreviated, or And I think it bears

14 streamline claims allowance process.

15 restating that it is a process thats grounded in the 16 allowability of claims. And allowability from my perspective

17 clearly means that the merits of the claims are not to be 18 ignored. To the contrary, the merits are precisely what

19 allowance is about. 20 And the ultimate question for the Court is what is

21 the debtors responsibility on applicable state law for 22 asbestos-related injuries caused by their products; or to state 23 it another way, what is the amount the debtors should be 24 required to pay to fairly compensate claimants for injuries 25 caused by their asbestos-containing products. And I think its

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17 1 important to note, Your Honor, that while state law applies, we 2 dont dispute that, because this is a federal court proceeding, 3 the federal rules of evidence apply, federal rules of procedure 4 apply. In other words, were no longer subject to state court

5 procedures or state court processes. 6 7 share. The focus of estimation is on the debtors several The purpose is not to estimate the liability shares of And, in fact, the ACCs, and the Committees

8 other parties.

9 estimation expert, Dr. Mark Peterson, acknowledged this, yet 10 again, in his recent January 3rd rebuttal report with respect 11 to the THAN claimant information. As he said on Page 1 of that

12 report, quote, the debtors are responsible for paying their 13 share, not some other co-defendants share, close quote. 14 Because there are two debtors, the Court is required In that

15 to separately estimate the asbestos liability of each.

16 regard, and this is admittedly simplistic, there are two 17 separate corporate entities, there are two separate estates. 18 We filed separate sets of schedules, separate sets of 19 statements of financial affairs. Theres no order Theres no order

20 substantively consolidating the estates.

21 that's determined that SPHC is the alter ego of Bondex, or 22 vice-versa. As a consequence, Your Honor, theres nothing in

23 the more than two-and-a-half year record of these cases that 24 would relieve the Court of the need to separately estimate the 25 liabilities of each debtor.

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18 1 That, Your Honor, is the legal framework within which

2 this Court should estimate the debtors liabilities for 3 asbestos claims. 4 THE COURT: Except for the fact that Bondex is

5 admittedly insolvent and not operating and, therefore, wont be 6 entitled to a discharge, and, therefore, wont be entitled to a 7 524(g) injunction. So why am I going through an estimation

8 proceeding as to Bondex? 9 MR. GORDON: Well, again, Your Honor, for purposes of It is not operating, but

10 estimation, its a separate entity.

11 as Your Honor knows, we have the ability to reorganize around 12 it depending on the structure of a plan of reorganization. 13 THE COURT: Actually, I dont know that. I think the

14 Third Circuit is pretty clear by implication from Combustion 15 Engineering and by definition in the statute that you have to 16 have a discharge to be supplemented by the 524(g) injunction. 17 18 19 20 21 22 MR. GORDON: THE COURT: MR. GORDON: THE COURT: MR. GORDON: THE COURT: Agreed. Youve got a non-operating entity -Agreed. -- thats insolvent. Right. And there are no assets to be sold. The

23 only business, in quotes, of the debtor is to manage its 24 asbestos liability. 25 a discharge. It has no assets, so it cant possibly get

So how --

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19 1 MR. GORDON: Well, as Your Honor knows, there are One example, which I gave

2 different ways to deal with that.

3 Your Honor before, is that a business could be contributed to 4 Bondex. I mean, there are ways to deal with that. Plans have

5 been structured that way in the past to deal with that issue. 6 THE COURT: But there isnt a plan on the table

7 thats structured that way now. 8 9 10 plan. 11 12 MR. GORDON: THE COURT: Correct. So right now, there is no plan on the MR. GORDON: THE COURT: Thats correct. And we estimate in connection with a

13 table that shows that Bondex in any way can survive through 14 this bankruptcy as an ongoing concern that can make ongoing 15 contributions into a 524(g) trust. 16 17 MR. GORDON: THE COURT: Thats correct. So I think at this point, if thats the I

18 debtors position, were going to limit the trial to SPHC. 19 see no basis to estimate as to Bondex. 20 MR. GORDON:

Well, again, Your Honor, to me, if you

21 do that, youre just foreclosing potential reorganization 22 alternatives at a time where the parties are not in agreement; 23 they may be in agreement in the future. From my way of

24 thinking, that just -- you know, that would not ultimately be 25 helpful to the process. And I would say, the other point I

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20 1 would make, Your Honor, if youre going to separately focus on 2 SPHC, youre necessarily dealing with this split issue anyway. 3 The issue doesnt go away whether you want to look at the two 4 entities together or not, because if you have to separately 5 focus on one, youre taking out a portion of the liability and 6 applying it to that one. 7 THE COURT: But it doesnt matter because if Bondex

8 doesnt get a discharge, its back in the tort system, in 9 quotes, because anybody who has a claim against Bondex will 10 pursue it in the tort system. So, as far as Im concerned, I

11 think Bondex probably, simply at this point, ought to be 12 dismissed. If, in fact, it has a reorganizational potential,

13 then it should file a case in which it can show how its going 14 to reorganize. At this point, I simply dont see a basis.

15 Neither plan indicates that Bondex is going to continue 16 operations. And I havent heard from the debtor anything to

17 date in this case that indicates that a business is going to be 18 contributed, that theres going to be some sort of -- I dont 19 mean this in a legal sense -- but merger of Bondex with 20 something else so that it will be an ongoing business. 21 has been no word of that in this case until now. 22 23 24 MR. GORDON: THE COURT: MR. GORDON: Right. Well, again -There isnt now, either. There

It isnt now.

Well, the point I was trying to make,

25 Your Honor, is focusing on SPHC is not going to change the

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21 1 evidence that Your Honor would hear today because the way the 2 evidence has come in on both sides is that people have looked 3 at the liability as a whole for both debtors. In order to

4 separately focus on SPHC, you then have to partition that 5 liability. So all Im saying is, whether you focus on SPHC, or

6 you do it company by company, that partitioning has to occur in 7 either event. 8 9 10 THE COURT: MR. GORDON: THE COURT: Why? Because youre starting with -I mean, I dont know if theyre jointly

11 or severally liable in the tort system, or the structure of the 12 complaints. I mean, I dont see how you can give me evidence

13 as to a consolidated liability and then say, oh, by the way, go 14 separate it out. Youve got the burden of separating it out.

15 Thats not my burden, its your burden. 16 MR. GORDON: Right. But Im saying -- Im saying

17 thats what we will do. 18 partitioning issue. 19 THE COURT:

Both sides have addressed the

Im just saying, if youre going to -Where have they addressed the

20 partitioning issue? 21 MR. GORDON: In the expert reports. Its addressed

22 in Dr. Mullins expert report on our side.

Its addressed in

23 Dr. Vasquezs expert report for the Future Claimants 24 representative. Remember, Your Honor, it starts with the

25 liability in total, and then theres a partitioning among the

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22 1 three eras, we call them the Reardon era, the SPHC era, and the 2 Bondex era. 3 4 5 6 Bondex. 7 THE COURT: MR. GORDON: THE COURT: Yes. Thats where the partitioning is. Oh, but thats not as to SPHC versus

I thought thats what you were talking about. MR. GORDON: Yes, it is. Thats one of the three

8 eras that there are. 9 era.

Theres a Bondex era and theres an SPHC

So all Im saying is, Your Honor, whether you focus on

10 SPHC or whether you do both, you have to do the same 11 partitioning anyway. 12 THE COURT: So your experts are going to be able to

13 give me some analysis that says that during the SPHC era, only 14 the people who filed claims against the debtor and only SPHC 15 settled claims for that particular era, that the exposures were 16 limited to that time frame. And then for the Bondex era, that Thats what the

17 exposures were limited to that time frame. 18 evidence is going to -19 20 MR. GORDON: THE COURT: Thats correct.

-- clearly demonstrate, that there were

21 no cross exposures? 22 MR. HARRON: Your Honor, I hate to interrupt during

23 opening statement, but I think Mr. Gordon may have misspoken. 24 Our expert, Dr. Vasquez did not do that. You may have been

25 referring to his reply to Dr. Mullins work.

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23 1 2 3 that. 4 MR. GORDON: MR. HARRON: His rebuttal. We addressed Dr. Mullins effort to do

We did not do that independently. THE COURT: Ive read the reports. I mean, I

5 recognize that Dr. Mullins is separated out, according to what 6 youve just stated. Im not aware that anybody has made an

7 opinion that says SPHC is liable for this and Bondex is liable 8 for that. 9 If its there, I missed it. MR. GORDON: Well Dr. Mullin did. Dr. Vasquez, in

10 his rebuttal report, looked at what Dr. Mullin did and said he 11 didnt allocate enough to Bondex and he allocated another five 12 percent to Bondex. 13 THE COURT: Well, I must have missed a report. Okay. Ill

14 have to go back and see where they are. 15 16 MR. GORDON: We got all week.

MR. SHEPPARD:

I hate to interrupt, but I want to

17 object and join Mr. Harrons objection because I dont believe 18 that thats what Dr. Peterson did, either. And I think that

19 Mr. Gordon just misstated what their rebuttal report said. 20 THE COURT: Whatever they say, thats what theyre

21 going to say.

Im just trying to understand what the debtor And as I understand it,

22 says the debtor is going to produce.

23 youre going to give me an estimate that says, exposures in a 24 certain period generate a liability for SPHC in the debtors 25 view of X, and exposures in the Bondex period generate a

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24 1 liability for Bondex in Y, and neither the twain shall meet. 2 MR. GORDON: Right. And Bondex, just to be clear,

3 and Im going to get into this further in my opening statement, 4 hopefully, Bondex assumed all the liability. 5 the day Bondex has everything. So at the end of

But SPHC did not, and Im going

6 to explain that when I go through the corporate history here. 7 So its actually -- SPHC is the entity that has to be 8 partitioned. Its got six years of liability from 1966 to 72.

9 And then theres a legal argument as to whether or not it 10 picked up liability prior to 1966. 11 THE COURT: But then youre going to say that even

12 though it has that six years of liability, Bondex assumed it? 13 14 15 insolvent. 16 17 MR. GORDON: THE COURT: Yes. So were back to Bondex, and Bondex is

What are we here for? MR. GORDON: THE COURT: Well -If Bondex assumed all of the liability,

18 Bondex is insolvent, its not operating, its not going to get 19 a discharge, so whats the purpose? 20 doing here if thats the case. I dont know what were

Theres no purpose going

21 through a week-long estimation hearing for a company thats 22 insolvent and going to end up back in the tort system. 23 MR. GORDON: Well, again, my point is, Your Honor,

24 from an estimation point of view, all the experts looked at the 25 liability as a whole. That necessarily would pick up the

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25 1 Bondex liability. And the issue thats then created is how do

2 you partition that liability in order to come up with SPHCs 3 specific liability. 4 THE COURT: But it doesnt matter. If Bondex assumed

5 it all and Bondex isnt getting a discharge, then your argument 6 in the state court system is that SPHC has no liability because 7 Bondex is, in quote, its successor and picked up the liability. 8 So I think the issue is we should be dismissing Bondex and that 9 should be the end of this. 10 11 12 MR. GORDON: THE COURT: MR. GORDON: Well, let me straighten -And this is over today. Let me straighten out that point, Your The fact that

13 Honor, because I think theres some confusion.

14 Bondex assumed SPHCs liability, as Your Honor knows, doesnt 15 mean that SPHC is no longer liable, it just creates another 16 party with liability. 17 18 19 20 THE COURT: MR. GORDON: THE COURT: MR. GORDON: Theres not a release of SPHC. Oh, theres no release. Right. Okay. As to third parties, obviously. Im

21 sure the claimants wouldnt agree that because Bondex assumed 22 SPHCs liability that theres no liability to SPHC. 23 thats obviously not the law, Your Honor. 24 THE COURT: Well, I think the evidence should be You know,

25 limited to whatever SPHCs liability is, if thats the case.

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26 1 There is no point, from what I can see, from going forward with 2 this with respect to Bondex. You know, unless youre going to

3 put a plan on the table by tomorrow that shows me how Bondex is 4 actually going to restructure and be able to be entitled to a 5 discharge, were wasting time. 6 7 8 MR. GORDON: THE COURT: MR. GORDON: Right. Well --

And resources. I hear Your Honor. You know, I said

9 what I had to say -- you know, what Ive had to say on that. 10 My view is we want to preserve the flexibility. But putting

11 that aside because I know Your Honor right now is not agreeing 12 with me on that, all Im saying in terms of the proof that goes 13 in, everybody starts with the whole and then you have to 14 partition it. So were kind of at the same place whether you

15 focus on SPHC, or whether you focus on Bondex. 16 THE COURT: All right. Well, your evidence will be

17 your evidence. 18

Well see how it goes. Now to the evidence, Your Honor. I

MR. GORDON:

19 would start first with what the evidence is going to show in 20 terms of what I would call the SPHC/Bondex story. 21 were a very small player. The debtors

They had a primary manufacturing

22 facility in East St. Louis and a smaller facility in New 23 Jersey. They, over time, had on average less than one percent

24 of the joint compound market, a market that comprises only 25 approximately one-and-a-half percent of asbestos fiber usage

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27 1 among all asbestos containing products. If you take those two

2 facts together, the debtors products represented less than 3 two-hundredths of one percent of the market for asbestos 4 containing products. In the time that the debtors were

5 producing asbestos containing joint compound, they had sales of 6 no more than $6 million. They sold products in predominantly

7 small, consumer sized packages for limited do-it-yourself home 8 repair use. 9 Despite, Your Honor, these very small sales, this

10 negligible market sale, sale of products in small markets for 11 episodic do-it-yourself use, its now been claimed that we owe 12 over $1 billion to compensate mesothelioma claimants. And its

13 also claimed that were a substantial cause of half or more of 14 all meso cases that occur every year. Just to put that in

15 perspective, Your Honor, U.S.G., which had over fifty times the 16 debtors market share, paid $4 billion to a trust. 17 pay $50 billion. 18 settlements. 19 1990s. They didnt

In the 1990s U.S.G. paid $500 million in

The debtors in contrast paid 10 million in the If you do the math, 50

Thats the same 50 to 1 ratio.

20 into four billion isnt one billion, its about 80 million. 21 Common sense, Your Honor, we would submit would tell you that a 22 $1 billion estimate could not possibly be right. 23 Now, to go to the corporate history, I do have a I dont know how well this is going to show

24 chart for this. 25 up.

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28 1 THE COURT: Is this going to be an exhibit somewhere

2 so that Ill be able to see it later? 3 MR. GORDON: Were going to use it as an exhibit

4 later with the witnesses, yes, Your Honor. 5 6 THE COURT: MR. GORDON: All right. Debtor SPHC, which was then known as

7 Republic Powdered Metals, Inc., purchased the assets of the 8 Reardon Company in 1966 for $2.3 million. The Reardon Company

9 was a manufacturer and seller of a joint compound product line 10 that included products that contained small amounts of 11 chrysotile asbestos, generally about three to seven percent 12 chrysotile asbestos, and many of those products were sold under 13 the brand name Bondex. In connection with that acquisition,

14 Bondex assumed liability for products manufactured or sold 15 prior to the acquisition that caused bodily injury subsequent 16 to the acquisition. Joint compound sales by Reardon prior to

17 the acquisition were approximately $8 million. 18 Now, SPHC, and this is where the naming -- I want to In

19 be clear on the naming and I think the chart might help.

20 1971 SPHC changed its name from Republic Powdered Metals, Inc. 21 to RPM, Inc. SPHC continued to manufacture and sell the joint So you have a period from

22 compound products until May of 1972. 23 1966 through May of 1972.

In May of 1972, Bondex was And Bondex

24 incorporated as a wholly owned subsidiary of SPHC.

25 acquired all the assets and assumed all the liabilities of that

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29 1 joint compound product line that was referred to as the Reardon 2 division of -- Ill refer to is as SPHC. 3 1972. 4 So following May of 1972, SPHC did not manufacture or In fact, after that date, Bondex, then its wholly That occurred in

5 sell any joint compound products.

6 SPHC became merely a holding company.

7 owned subsidiary, manufactured and sold asbestos-containing 8 products until 1977 -- Im sorry, asbestos-containing joint 9 compound until 1977. 10 This isnt on the chart, but just to provide a bit In 1999, which is about -- it was really more

11 more background.

12 than 20 years after Bondex ceased selling asbestos-containing 13 joint compound, it sold certain of its assets to two affiliates 14 in connection with a corporate restructuring and, thereafter, 15 Bondex ceased operating. 16 operations in 1999. 17 As Your Honor has heard in many hearings before, in So Bondex, just to be clear, ceased

18 2002, and this is reflected on the chart, SPHC, which, again, 19 at this time was still known as RPM, Inc., was involved in a 20 corporate restructuring, pursuant to which RPM International 21 was created as a Delaware holding company. RPM International

22 became the ultimate holding company for all the various RPM 23 businesses, and RPM, Inc., or today SPHC, became an 24 intermediate holding company. And all through that, Bondex

25 continued to be a wholly owned subsidiary of SPHC.

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30 1 Your Honor, I didnt really walk through very well

2 this chart, but youll see we tried to lay out the various 3 dates in here. The 1947 date, which is the date on which SPHC,

4 then Republic Powdered Metals, Inc. was incorporated, coming 5 through 1966 youll see in March when the transaction was 6 signed to purchase the assets of Reardon, into 1971 where the 7 name change occurred, Republic Powdered Metals became RPM, Inc. 8 Then the May transactions, which were significant where Bondex 9 was created as a wholly owned subsidiary. The Reardon division

10 assets were sold to -- or assigned to Bondex and it assumed all 11 the Reardon business liabilities. 12 A related transaction, which I didnt talk about,

13 Your Honor, at the same time RPM, Inc., or SPHC today had a 14 roofing business. And that business -- that division was also And thats why after that point,

15 sold to another subsidiary.

16 SPHC, then RPM, Inc., no longer had any business operations and 17 became a holding company only. And then to the far-right And then, of course, the RPM,

18 column youll see the 2002 dates.

19 dates in 2010 Bondex incorporated in Delaware in 2010,

20 Inc. changing its name to Specialty Products in May of 2010, 21 and then the bankruptcy filing on May 31st, 2010. 22 Then, Your Honor, Id like to comment on the evidence

23 with respect to the litigation history, the asbestos litigation 24 history. Bondex received its first asbestos lawsuit in 1980. For about 20 years the

25 SPHC received its first suit in 1992.

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31 1 debtors were treated in the tort system in a manner that was 2 commensurate with their status, as a small player in the 3 manufacture and sale of asbestos-containing products. From Of

4 1980 to 1999 the debtors were named in only 107 meso cases. 5 those, Bondex ended up making payments in only 41. 6 7 8 THE COURT: Okay. THE COURT: Excuse me. What happened?

In 2000 --

(Pause) Ive got the computer back. I

9 dont know, something happened and I -- when the noise 10 happened, I lost my computer screen, but Im back. 11 12 13 14 Okay. Bondex paid in only 41? Yes. Yes. Are we back on? Thank you.

MR. GORDON: THE COURT: MR. GORDON:

Bondex ended up making payments in 41 of In 2000, Bondex received only 11 meso

15 those 107 meso cases. 16 cases. 17 cases.

By contrast, in 2009 Bondex received almost 1,100 meso And in that same year, about one-half of all the meso

18 claimants in the U.S. sued the debtors. 19 20 21 22 THE COURT: MR. GORDON: THE COURT: MR. GORDON: Are the debtors always sued together -No. -- SPHC and Bondex? No. I think the numbers, if I recall

23 it, was that Bondex who was the one who was typically sued in 24 every case. 25 the cases. SPHC, I believe, was sued in about 30 percent of

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32 1 2 3 4 5 THE COURT: MR. EVERT: MR. GORDON: THE COURT: MR. GORDON: All right. Roughly, 30 to 50 percent. 30 to 50 percent, Im being corrected. All right. Your Honor, this is another exhibit. And I have an I

6 think weve shown this in prior proceedings. 7 extra copy, if I may approach. 8 9 THE COURT: MR. GORDON: All right. Thank you.

This is just a way of trying to

10 graphically depict what happened over this period of time that 11 I was referring to, although, this does not go all the way back 12 to 1980, this begins in 1988. But you can see all the way

13 through 1999 and into 2000 the negligible number of claims. 14 Theyre not even enough to show up on this graph. And then the

15 spike that occurred, really, beginning in 2002 through 2009. 16 And we contrasted that to the national meso filings, as well as 17 the national mesothelioma incidents, as well. 18 Now, the question, of course, this raises is why the The nature of the

19 avalanche of meso cases against the debtors?

20 debtors products hadnt materially changed over the time they 21 were making asbestos-containing joint compound. 22 the sales did not materially change. 23 didnt change. The extent of

The small package size

The DIY, or do-it-yourself use didnt change.

24 The small amounts of chrysotile asbestos versus amphibole 25 asbestos, that didnt change. What changed, Your Honor, was

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33 1 the fact that a number of the truly responsible asbestos 2 defendants, who earlier had been making the substantial 3 majority of the payments to the claimants filed for bankruptcy. 4 And as a result of that, Your Honor, the plaintiffs lawyers 5 did what you would expect them to do, they looked for other 6 solvent defendants to replace the defendants who filed for 7 bankruptcy. 8 The evidence will show that in the tort system, its

9 very cheap for a plaintiff to file suit because legal fees do 10 not have to be paid unless and until payments are received. 11 And its particular inexpensive or cheap to add defendants, 12 which results in a minimal incremental cost. And, in fact,

13 youll see later in these proceedings that Jeffrey Simon, one 14 of the counsel for the plaintiffs who the ACC will call, has 15 testified that it costs him about $25,000 to try a case all-in. 16 And when he says $25,000, what hes referring to, of course, 17 isnt legal fees, hes referring to the cost of flying expert 18 witnesses in and out, rental cars, litigation support, and 19 items like that. In contrast, the evidence will show that its And in the

20 very expensive for defendants to defend cases.

21 debtors case, it cost on average $300,000 per case to take a 22 case to verdict. 23 Now, by 2010 the average plaintiff who sued Bondex That same average plaintiff Its not very

24 sued about 50 other defendants.

25 submitted claims against 16 asbestos trusts.

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34 1 likely, Your Honor, we would submit, that one individual would 2 have a valid claim against 66 different parties. 3 Now, the substantial majority of the cases were filed Why?

4 against the debtors in joint and several jurisdictions.

5 Well, the answer is is because the plaintiffs pick the venue, 6 and in those states theres a potential risk that the defendant 7 will have to pay for the liability shares of other parties. 8 And, in fact, thats exactly what happened to these debtors. 9 Additionally, Your Honor, the debtors were subjected

10 to an increasing number of claims in jurisdictions, like 11 Madison County or Cook County, Illinois, where the courts had 12 adopted trial dockets that allowed the plaintiff to select the 13 case he or she wanted to try from a large number of cases that 14 were pending on the docket on the day of trial. And the

15 evidence will show, Your Honor, that the vast majority of these 16 cases were filed by three law firms, the Cooney firm, the 17 Simmons firm, and the Lanier firm. But as a result of that

18 docket process, a defendant was forced to prepare to defend 19 multiple cases at once. 20 one. The plaintiff had to prepare for only

This, of course, Your Honor, has nothing to do with the

21 defendants actual liability for the claim, but it, in fact, 22 substantially increases the defendants cost of litigation. 23 In the case of the debtors, in particular, Your

24 Honor, the number of cases filed in Illinois eventually 25 increased to 45 percent of all meso claims filed against the

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35 1 debtors. 2 claims? And what was the debtors response to the increase in Prior to the wave of bankruptcy filings, the debtors

3 largely treated the cases like traditional litigation, 4 defending the small number of claims they had. They also at

5 that time had insurance and not surprisingly the insurers had a 6 significant say in the resolution of the cases. As the volume

7 of the claims increased and the insurance disappeared, however, 8 and Your Honor may remember from prior hearings that the 9 insurers claimed exhaustion in 2003, the debtors had to change 10 their approach. The dramatic and unexplainable increase in

11 claims by the three law firms I previously referred to, again, 12 the Simmons, Lanier and Cooney firms, and, again, primarily in 13 Illinois, created significant transaction costs. 14 For those cases, the debtors began to enter into

15 settlements to resolve all the claims pending on the docket. 16 And in those situations, Your Honor, the debtors would agree to 17 pay an aggregate amount of money for the entire docket of 18 cases, the total was set at a specified level per case. And

19 these, what Ill refer to as docket settlements, substantially 20 increased over time. 21 connection with that. 22 23 THE COURT: MR. GORDON: I want to show you another exhibit in I have an extra copy, if I may approach. Please. Thank you.

Your Honor, this exhibit attempts to

24 depict the rise in complaints filed against Bondex by the three 25 firms that Ive been referring to in my remarks. This spans a

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36 1 period 1999 to 2010. The different colors, obviously, indicate

2 the different firms involved; the green being the Simmons 3 Cooper firm, the orange being the Lanier firm, and the red 4 being the Cooney Conway firm. And, again, I think Your Honor

5 can see sort of similar to the bar chart I showed Your Honor of 6 all the claims filings over the similar time period, just with 7 respect to these firms in particular, youre seeing a similar 8 spike in claims during the period beginning, really, in 2003 9 and continuing through the date we filed for bankruptcy. 10 Now, in connection, Your Honor, with these docket

11 settlements, the debtors did not investigate the plaintiffs 12 allegations. They did not spend material money conducting Instead, they

13 discovery or otherwise defending the case. 14 agreed to pay a fixed sum to buy peace.

And in that regard, I

15 have another demonstrative here, and a copy for Your Honor, if 16 I may approach. 17 18 THE COURT: MR. GORDON: Yes. Thank you.

Your Honor, this is just a graphical

19 depiction of the way defense costs would increase as a case 20 approaches trial. I dont think this would surprise Your Honor

21 at all, but, obviously, the fees are relatively limited at the 22 initial pleading stage. They increase at discovery

23 depositions, you get the hearings, motions, pretrial and onto 24 trial, the costs really take off. And in a situation of these

25 docket settlements, of course, youre generally talking about

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37 1 settlements that are occurring very, very early on in the 2 process. So there may be some fees spent early on, theyre

3 very limited, though, because the idea is Im just -- Ive got 4 an agreement in place with this particular firm because were 5 in this jurisdiction with this very difficult process, weve 6 agreed to pay X amount per claim, and thats what were going 7 to do to buy peace. 8 So the amount is fixed. Theres an aggregate amount Although, however, its

9 thats fixed on a per-claim basis.

10 fixed on a per-claim basis, the plaintiffs firm would then 11 take that aggregate amount of money and allocate it among the 12 claims that were part of the docket cases that was being 13 settled. The debtors had no input into that. Those numbers I think its

14 were allocated as the plaintiffs lawyer saw fit.

15 important to note that these docket settlements with these 16 three firms amounted over time to roughly 30 percent of the 17 dollars that the debtors spent for asbestos -- well, for 18 mesothelioma settlements. The only thing the debtors asked for

19 in connection with these docket settlements was some proof, or 20 really an allegation that the plaintiff was exposed to the 21 debtors products. Thats what was expected in connection with

22 these settlements, obviously, in addition to a release, as 23 well. 24 From our perspective, Your Honor, these settlements

25 could not possibly be viewed, these docket settlements could

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38 1 not possibly be viewed as proxies for liability. A fact with

2 which Mr. Iola, a plaintiffs lawyer who will testify here, 3 hell be called by the Committee, violently agreed at his 4 deposition as he said, quote, the value youre establishing for 5 those claims in group settlements is not merit based. It has

6 nothing to do with what the real value of the claim is as to 7 Bondex, close quote. 8 Now, the remainder of the cases -- now Im off of the

9 docket settled cases, Your Honor -- were largely addressed 10 individually. 11 considered. In those situations, a host of factors were

These factors would include age, the claimants

12 age, the strength of the product ID evidence, the jurisdiction 13 of plaintiffs counsel and the like. Over half of these cases

14 would simply disappear at various stages of the litigation, and 15 then a few went to trial. 16 well, Your Honor. 17 approach. 18 I know this in some ways looks like a pitchfork, or a Ive got a chart to show this, as

And Ive got an extra copy, if I may

19 rake, but its actually conveyor belts and analogies like FedEx 20 packages, or UPS, whichever delivery service you want to assume 21 applies. But this is an attempt, Your Honor, to show the

22 breakdown and resolved claims over the period of time from 2006 23 to 2010. So youll see in the far left conveyer belt the three

24 law firm docket settlements, 25.3 percent of the resolved 25 claims. Next category are claims that were dismissed at some

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39 1 stage of the proceeding, thats over 50 percent. Next category

2 is claims that were settled for less than $50,000, 6.4 percent. 3 Claims settled between $50,001 and $200,000, 8.5 percent. 4 Claims settled for more than $200,000, 3.7 percent. 5 the claims that went to trial, .6 percent. 6 Now, with respect to the trial category, Your Honor, The debtors won defense And And then

7 over time there were only 32 trials.

8 verdicts in 19 of those; thats approximately 60 percent.

9 theres at least one case where the setoffs that resulted from 10 settlements with other defendants resulted in the debtors 11 paying nothing in respect to the verdict. 12 Now, with respect to the individual cases, the

13 debtors were able to settle, as you can see from this chart, 14 the substantial majority of them in amounts less than the cost 15 of litigation. And, again, as I previously indicated on

16 average, it cost us $300,000 to litigate a case through trial. 17 And, again, going back to the chart, you can see the numbers 18 reflected in terms of settlements below 50,000, settlements 19 below 200,000, and then settlements above $200,000. 20 Now, with respect to the higher value cases, Your

21 Honor, the evidence will show that these were cases that 22 typically involved -- or typically cases where the plaintiffs 23 focus was more on the debtors, either because few other 24 defendants were identified for whatever reason, or the 25 plaintiff did not have the typical occupation exposure to other

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40 1 defendants products, those were the higher value cases, and 2 those are the ones that are reflected in the higher 3 settlements. 4 At the end of the day, Your Honor, though, you see

5 this chart and you see the nature of the settlements, the size 6 of the settlements, the number that were dismissed and the 7 like. Nonetheless, the sheer volume of the filings and the

8 costs associated with defending and settling all these 9 thousands of claims was ultimately too much for the debtors to 10 handle, and thats what caused the filing of the bankruptcy 11 cases. 12 Now, Id like to, Your Honor, talk more specifically The evidence really falls in two or The first is the historical evidence Their

13 about the estimation.

14 three buckets, I think.

15 regarding the debtors; Ive already gone over this.

16 small size, limited sales, de minimus market share, use of 17 chrysotile asbestos only, the nature of the product, that is 18 the do-it-yourself use only, the fact it was sold in small bags 19 for home repair use. Were going to present all that evidence

20 and that will come in through, primarily, two witnesses, Kelly 21 Tompkins, who is the former general counsel for SPHC, and then 22 later RPM International when RPM International became the 23 ultimate holding company. Mr. Tompkins had primary authority

24 for settlement of asbestos claims from approximately June of 25 1998 through June of 2009. And then Denise Martin who is a

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41 1 senior vice president of NERA Economic Consulting. She did a

2 market share analysis for the debtors in 2005, and then she 3 updated that analysis, or did a new analysis in connection with 4 this proceeding here. 5 6 evidence. The second is what I refer to as the medical/science Youre going to hear evidence that the relevant

7 literature indicates that theres a material difference in the 8 toxicity between amphibole and chrysotile asbestos. The

9 toxicity of amphibole asbestos is substantially greater than 10 chrysotile. The evidence will show that amphibole asbestos was It

11 specified by the Navy for use in warships in World War II. 12 was used in various products that resulted in exposures to 13 workers in mining and milling, manufacturing, insulating, 14 shipyards, textiles, power plants and construction work.

The

15 information in the PIQs, I havent mentioned the PIQs yet, that 16 reflects that the overwhelming majority of mesothelioma 17 claimants alleged exposure to amphiboles, and theyve made 18 significant number of claims against bankruptcy trusts of 19 amphibole product manufacturers, sellers and installers. From

20 our perspective, Your Honor, its clear that amphibole asbestos 21 represents the most significant and substantial cause of the 22 mesothelioma for which the claimants are seeking recoveries 23 from the debtors, as well. 24 Youre going to hear evidence about a review of a

25 statistically significant sample of historical claims, which

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42 1 shows that only 6.9 percent of those claims alleged exposure in 2 a quantifiable dose to debtors products. And youre going to

3 learn that the PIQ shows no meaningful difference between the 4 current claims and that historical claim sample. Youre also

5 going to hear about a separate review of a statistically 6 significant sample of PIQs that shows that only about 11 7 percent of the claims have direct joint compound exposure and 8 no reported amphibole exposure. Accordingly, in our judgment,

9 or in our view, these are the only ones that could possibly 10 establish causation. 11 12 witnesses. This evidence will be presented primarily through two Dr. Kim Anderson, hes a director of toxicology and Hes an industrial

13 principal at GZA GeoEnvironmental, Inc. 14 hygienist and toxicologist.

And Dr. Allan Feingold, who is a

15 board certified pulmonologist, a medical clinician and an 16 expert in occupational lung disease. 17 And then with respect, Your Honor, to the actual As the Court already knows, the experts

18 estimation evidence.

19 in this case have taken dramatically different approaches to 20 estimation. Dr. Mullin, our expert, has used -- established

21 scientific methods, primarily econometrics, to examine 22 historical settlements and current claims. Hes done an

23 extensive statistical analysis of both historic data and the 24 information in the PIQs. Hes done this extensive factual

25 review and statistical economic analysis to determine what

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43 1 portion of the debtors historical settlement payments reflect 2 payments for actual liability. He then engages in a similar

3 econometric exercise to determine how much the debtors have 4 been forced to pay to cover the shares of liability of other 5 defendants. And then, finally, Your Honor, because three

6 distinct corporate entities manufactured and sold Bondex 7 products during specific time periods, hes partitioned the 8 liability between the three eras, the Reardon era, which would 9 be the era up until 1966, the SPHC era, which would be the 10 period from 1966 to 1972, and then the Bondex era, which would 11 be the period from 1972 to 1977. 12 Now, Dr. Peterson, who is the expert for the

13 Committee, and Dr. Vasquez, the expert for the Future Claimants 14 Representatives in contrast dont claim to estimate the 15 debtors several share of liability. Instead, they both

16 candidly admit that they estimated the cost to the debtors of 17 settling claims in the tort system. But by doing that, they And they

18 use no recognized or peer reviewed scientific method.

19 each make a series of unsupported ad hoc adjustments that have 20 the effect in Dr. Vasquezs case of immediately increasing the 21 debtors tort system costs by 50 to 70 percent, and in Dr. 22 Petersons case by 100 percent. If Doctors Vasquez and

23 Peterson had done what they claimed to do correctly, if they 24 had done it correctly, their calculation could be no more than 25 $600 million net present value.

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44 1 Now, Dr. Peterson acknowledges that he ignored the Dr. Vasquez did not

2 separateness of the corporate entities.

3 initially address the issue, rather, he simply treated the two 4 companies as one. Later he addressed the issue in his rebuttal And from my read of

5 report, we talked about that earlier.

6 that, he made adjustments to Dr. Mullins partitioning and 7 increased the amount of liability allocated to Bondex from 36.2 8 percent to 43.1 percent. 9 And then lastly, Your Honor, Dr. Mullin has analyzed

10 the claim data for approximately 1,475 of our current 11 claimants, and here Im referring to the data received from the 12 THAN Trust. So he reviewed THAN Trust data for 1,475 of our Based on his review and analysis, hes Three-quarters of our current Those

13 current claimants.

14 concluded the following.

15 claimants have submitted a claim to the THAN Trust.

16 submissions to the THAN Trust were underreported in our PIQs by 17 25 percent. One-third of the current claimants are current

18 claimants and receive payments from the THAN Trust, and over 50 19 percent of those claimants were paid 100 cents, the rest were 20 paid 30 cents. And then more than three-quarters of the

21 pending claims appear to qualify for payment from the THAN 22 Trust, and its likely that more than three-quarters of future 23 claimants will also qualify. 24 Now, the debtors have two other experts with respect The first is Dr. Anup Malani. He is a

25 to estimation.

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45 1 professor at the University of Chicago and specializes in law 2 and economics, empirical legal studies, and health economics. 3 Hes reviewed relevant law and economics literature on 4 settlements, which make clear that settlement values do not 5 correspond to liability or verdicts. And Dr. Mark Watson, hes

6 a professor of economics and public affairs at Princeton whose 7 expertise is econometrics. And, by the way, econometrics is

8 the study of statistics and quantitative methods applied to 9 economics. But hes reviewed the reports of Doctors Peterson

10 and Vasquez and determined that they employed no scientific 11 methodology, did not utilize any approach that is consistent 12 with the scientific and econometric forecasting literature. 13 Instead, he finds that they rely on simple extrapolation of 14 ratio and trends, together with ad hoc adjustments. 15 So, Your Honor, the task before the Court is

16 primarily twofold in connection with this estimation hearing. 17 Number one, youre going to need to decide what should be 18 estimated. Are estimating the debtors actual liability, or And then

19 are we estimating tort system settlement payments.

20 number two, once thats determined, what is the appropriate 21 estimation of liability or settlement costs. The debtors would

22 submit that the law requires that the Court estimate actual 23 liability. The evidence will show that the debtors actual

24 liability consistent with the historical facts and the medical 25 science evidence is relatively small, at least in comparison to

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46 1 tort system settlement costs. 2 Now, that said, Your Honor, youre actually not going

3 to see much more of me in connection with the estimation 4 hearing. We have three counsel who will primarily be A Mr.

5 responsible for presenting the evidence to Your Honor.

6 Evert sitting immediately -- or on the first seat to the right 7 of my seat, who is going to handle Dr. Mullin, Dr. Martin and 8 Dr. Malani. Mr. Jackson sitting to his right, who is going to And then Mr.

9 handle Mr. Tompkins, Mr. Coleman and Dr. Watson.

10 Houff, who is sitting to Mr. Jacksons right, who is going to 11 handle Dr. Feingold and -- is it Dr. or Mr. Anderson? 12 13 14 MR. HOUFF: MR. GORDON: Dr. Anderson. Dr. Anderson.

And then the last thing I would say, Your Honor,

15 before I sit down is that we do intend to reserve some of our 16 17-and-a-half hours for rebuttal, if we can manage to do that. 17 And in that regard, wed expect to us, potentially, Dr. Watson 18 and possibly Dr. Mullin for rebuttal. 19 20 THE COURT: MS. RAMSEY: Thank you, Your Honor.

Does the ACC wish to make an opening now? We do, Your Honor, but could we request

21 a five minute recess just to confer with the FCR before we 22 begin our openings? 23 24 minutes. 25 MS. RAMSEY: Thank you, Your Honor. THE COURT: Yes. Well be in recess for five

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47 1 2 3 THE COURT: MS. RAMSEY: (Recess) Ms. Ramsey, youre on the clock. Good morning, Your Honor. Thank you. I

4 would like to start, Your Honor, where the Court did this 5 morning. As the Court is aware, the Committee has filed a

6 motion to dismiss these cases, both of them, for a different 7 series of reasons. But with respect to Bondex, the Committee

8 is in agreement with the Court, that there is no purpose for 9 Bondex to continue to be in this bankruptcy proceeding if, in 10 fact, the debtors are now treating these two debtors as 11 separate entities with separate liabilities, each of which are 12 segregable from the other. And so we would like to -- we had

13 listed our motion for the next omnibus on February 4th, but we 14 would like to make an oral motion today to dismiss Bondex from 15 this proceeding. 16 THE COURT: Well, I wont do it orally, but I will

17 certainly consider it when theres an opportunity for the other 18 side to respond to your motion. 19 MS. RAMSEY: Thank you, Your Honor. And just to

20 clarify the different time periods of the estimation, we do 21 believe that it would significantly cut down the Courts time 22 and the parties time if we were to be estimating SPHCs 23 liabilities only because SPHC takes the position that it has no 24 liability at all for any of the obligations incurred post 1972 25 when Bondex was spun off as a separate corporation and became a

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48 1 subsidiary of SPHC. If we were to limit the estimation period

2 for pre 1972, that would, obviously, cut down on some of the 3 effort of the parties. 4 To go to the themes that I understood from the

5 debtors opening, Your Honor, what I heard were sort of two 6 themes that came out of the debtors presentation. One is that

7 the debtors have been the victims of a broken tort system. 8 That they have, I think in Mr. Gordons word, been forced to 9 pay money in settlement of claims because they believe that 10 defendants are disadvantaged in the tort system, particularly 11 in Madison County where the three firms that were the focal 12 point of Mr. Gordons opening, the Lanier firm, the Simmons 13 firm, and Cooney Conway were practicing and pursuing claims on 14 behalf of their clients. 15 The debtors also talked about trial risk and the

16 increasing costs and had a demonstrative about the closer you 17 get to trial, the higher the costs become for the debtor. 18 Mr. Gordon compared the testimony of Mr. Simon that in 19 out-of-pocket costs, he typically would find that it cost him 20 about $25,000 to pursue through trial a plaintiffs claim, 21 whereas, Mr. Gordon compared that to what he stated was about 22 $300,000, which was Bondexs average cost to get through trial. 23 Im certain that that cost included counsel fees, as well. But And

24 his position was comparatively that defendants, and Bondex in 25 particular, are disadvantaged in the tort system. And that is

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49 1 consistent, Your Honor, with what the debtors have been saying 2 all along, including their informational brief, although, we 3 didnt really fully understand what was meant. But from the

4 beginning of the proceeding, literally, the debtors have talked 5 about shaping litigation. And now it is very clear that the

6 shaping litigation is really simply phrasing for looking to 7 file in bankruptcy court to change the results that would have 8 been obtained in the tort system. And, Your Honor, we dont

9 think thats what bankruptcy is for, and we certainly dont 10 think that thats what an estimation proceeding should be 11 measuring. 12 The other theme that came across was the notion that

13 Bondex was a small player and that comparatively that its 14 responsibility for causing asbestos injury was less than some 15 of the larger asbestos manufacturers that have gone before it. 16 And that is certainly true, that they are smaller in comparison 17 to some other of the defendants that have been before this 18 Court, and that the Court is very familiar with, including, 19 recently, W.R. Grace. That, however, doesnt mean that they do

20 not have significant liability on their own. 21 And part of what the Court will hear during the

22 estimation trial is that the asbestos products are at issue 23 here originated with the Reardon Company, which began putting 24 in asbestos containing products into the stream of commerce by 25 at least 1955. The debtor now known as SPHC purchased the

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50 1 Reardon Company in 1966 and then operated Reardon as an 2 unincorporated division until 1972 when it spun off and renamed 3 the entity Bondex International. Following that time period,

4 SPHC, we would contend and do contend, continued to operate 5 Bondex, essentially, as an unincorporated division anyway, 6 despite the corporate form as youve heard the debtors contend 7 that that corporate change cut off the liability of SPHC. 8 And in the event, over that period of time, the

9 debtors manufactured 15 different types of asbestos containing 10 products using 60 different product names. And I should add

11 that the Court will also hear that when SPHC acquired Reardon, 12 that it did so with a specific assumption of the liabilities, 13 including the asbestos liabilities of Reardon. 14 The debtors continued, and this will be important

15 testimony because one of the questions that Mr. Gordon raised, 16 and one of the points that the debtors have made continually, 17 is that there was a spike, significant spike in claims that 18 occurred sometime around 2000 to 2002. And the debtors have

19 placed the responsibility for that spike almost entirely upon 20 what they term the bankruptcy wave, or other large asbestos 21 defendants filing for bankruptcy. However, what the Court will

22 hear is that simultaneous with some of those bankruptcy 23 filings, there were plaintiffs in the system who began to 24 pursue claims in earnest against Bondex and other joint 25 compound manufacturers.

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51 1 And with respect to Bondex that in particular, there

2 were some very, very damaging examinations of corporate 3 representatives of Bondex. And during those examinations what

4 came out was that Bondex continued to put into the stream of 5 commerce asbestos containing product even after it was banned, 6 and continued to encourage the sale of that product by its 7 retailers, refusing to accept return product, encouraging them 8 to clear their shelves because they would not accept those. 9 There was also testimony about failure to warn, the fact that 10 there were not warning labels until they were expressly 11 required to by the consumer products commission. 12 were, in fact -- I lost my train of thought. And that they

That they had --

13 that they continued to, in any event, encourage consumers to 14 use these products, not only on this limited basis that the 15 debtors have said, but on a national basis. So there were

16 other things going on, and the Court will hear some of that, 17 including some of the videotaped testimony that was taken when 18 those statements were made. Oh, the other statement, Your

19 Honor, that was particularly damaging was that the chemist that 20 was retained by Bondex, or SPHC during that time frame to 21 evaluate whether the product could be made without asbestos, 22 the joint compound, and would be equally effective, testified 23 that he could have done that at a much earlier point in time 24 than Bondex took steps to remove asbestos from its products. 25 So what the Court will see as we go through some of

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52 1 the evidence in this trial is that there is a repeated theme in 2 the case evaluation studies, in the pretrial reports, in the 3 post-trial summaries that this testimony was particularly 4 damaging to Bondex. And there are case evaluations and

5 pretrial summaries where defense counsel was reporting on a 6 successful verdict, or a successful event procedurally in trial 7 because they were able to exclude that evidence. And in other

8 instances, they were reporting on their inability, or their 9 failure to have been successful in efforts to exclude that 10 evidence. And one can see from what ultimately happened with

11 those claims that that was a significant factor in whether or 12 not Bondex settled, and the price at which it settled for. 13 One of the things that Mr. Gordon mentioned in the And I think its

14 opening was comparing Bondex to U.S. Gypsum.

15 important, first of all, to note that the U.S.G. settlement of 16 $4 billion was just that. 17 the facts of those cases. It was a settlement. It was under

It was a reflection of a number of That

18 things, including ability to pay and available resources. 19 did not establish the amount of U.S.G.s liability. 20 not an estimation proceeding, that was a settlement.

That was And I

21 think that the more, perhaps, telling statistic is that 22 experience of the THAN bankruptcy. According to THANs

23 disclosure statement -- the Court will be hearing about THAN, I 24 think, quite a lot during this trial -- approximately 80 25 percent of its liability is related to product that it sold to

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53 1 either Bondex or Kelly-Moore. It has a small portion of the Well be presenting the Court

2 provision of asbestos to Bondex.

3 with evidence that the largest part of its provision of product 4 was pre-1966. And after that, Bondex suppliers were largely But in any event, when THAN established its

5 other suppliers.

6 trust about three years ago, that trust was funded with $900 7 million. 8 Mr. Gordon also talked about how in the highest year That

9 that Bondex ever had of sales, it was around $6 million. 10 was in 1966.

That would equate to about $25 million at a three So its not as small a player,

11 percent inflation rate today.

12 or did not have a smaller distribution, and didnt have as 13 small product sales as the debtors would have you believe. 14 15 16 If I can get the PowerPoint up. THE COURT: MS. RAMSEY: I think its on. Is it on? Oh, Im sorry. I was not

17 seeing it there. 18 Honor. 19

I was looking at the wrong screen, Your

Thank you. Your Honor, one of the charts that the Court saw at

20 the last hearing on December 17th is the chart thats now on 21 the screen. It is a table that was taken from Dr. Mullins And it reflects the total amount over time of

22 first report.

23 the settlements that were paid on an annual basis, starting in 24 2000 up to May 31st of 2010 when the debtors filed for 25 bankruptcy. And what the debtor can tell from this is that --

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54 1 or what the Court can tell is that the debtors had a robust 2 history of resolving asbestos claims. In fact, over time, the

3 debtors had resolved approximately 5,500 mesothelioma claims. 4 So even in a short period of time during the five years before 5 bankruptcy starting 2005, the debtors paid almost $300 million 6 in indemnity costs to asbestos claimants. 7 That compares, Your Honor, with another chart that

8 the Court saw on December the 17th, which is on the screen now, 9 which reflects the different estimations of the three 10 estimation experts in this case. 11 estimate of 1.255 to 1.367. Dr. Peterson, who reached an

Dr. Vasquez, the FCRs expert, who And Dr.

12 reached an estimation of 1.088 to 1.141 billion.

13 Mullins estimate, which in total comes to approximately $125 14 million. I think that is clearly, as the Court has noted, in

15 sharp contrast to the experience that they had had up to that 16 point in the tort system. 17 Getting to the question of why are we here and what There is an abundance of case And its clear that

18 are we supposed to be measuring.

19 law that has come out on that question.

20 claims are to be appraised on the basis of what would have been 21 a fair resolution absent bankruptcy. And getting to that

22 point, Mr. Gordon started by saying that theres a reference to 23 state law, but that were now sort of in a different forum with 24 different evidence rules, and so forth opined. But the law is

25 clear that with respect to personal injury and wrongful death

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55 1 claims, that those claims are to be valued in accordance with 2 state law, and that those claims have the right to be tried 3 before a jury and to be liquidated in either the federal court 4 where the bankruptcy is pending, or they can request to go back 5 to the state court where they would have been tried in the 6 first instance. The point is, that they -- those claims are to

7 be liquidated and valued in accordance with the values that 8 would have applied absent bankruptcy. 9 An aggregate estimation, which is what were

10 conducting here, what the Court is conducting here is designed 11 to prevent undue delay in the administration of the estate and 12 to promote the speed and efficiency goals of the code while not 13 implicating the rights of individual claimants. And its clear

14 with respect to avoiding undue delay and administration of the 15 estate, the goal is to assist the parties in either formulating 16 a plan, or to assist the parties in making the determinations 17 in the court, and making the determinations necessary to 18 confirm a plan. 19 20 file. As the Court has noted, the debtors have a plan on That plan treats the debtors together -- or liabilities Proposes one trust to pay and resolve those claims.

21 together.

22 The Committee and the FCR have a joint creditor plan on file. 23 Our plan, likely -- also would propose that same treatment if 24 properly funded. If not funded an appropriate level, our plan

25 would provide the debtors -- would return to the tort system.

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56 1 So with respect to conducting the estimation, Your

2 Honor, the purposes of this estimation, since there is no 3 agreement by the debtors -- the Committee plan and the FCR 4 plan, and since the Court has by ruling at the last hearing 5 that 524(g) relief could not be crammed down without a vote, 6 has made the debtors plan facially unconfirmable. The purpose

7 of this proceeding would be to assist the parties in 8 formulating a plan. And in order to do that, Your Honor, its

9 important to consider what would get the parties to a plan. 10 The Supreme Court, and weve mentioned this quote But bankruptcy

11 from Raleigh v. Illinois at several hearings. 12 is not supposed to be a brand new regime.

Its not supposed to

13 enable parties to walk away from what their traditional 14 experience has been. Its not a do-over for the debtors. It

15 is not to achieve a bankruptcy discount, or some new theory 16 about what the liability -- what the debtor should have to pay, 17 what their liability actually is in their sole determination. 18 What an estimation is supposed to do is enable the parties to 19 reach agreement, if thats possible, and its to enable the 20 Court to make the various determinations that it has to make. 21 And the only way that the Court can make those determinations 22 is by assessing the estimation in a manner consistent with the 23 requirements of confirmation, including the best interest test, 24 including the absolute priority test, including the 524(g) test 25 is 524(g) is at issue in this case, of ensuring that future

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57 1 claimants are treated fairly under all the circumstances. 2 The estimations, as the party well knows here, are

3 driven by the fact that they are estimating different things. 4 And I will take issue with one particular thing that Mr. Gordon 5 said, which is that Dr. Peterson is doing something other than 6 estimating Bondexs several share. I think the parties, and we

7 had a little bit of dialogue about this at the last hearing, 8 have a different definition of what several share. Several

9 share in the assessment of Dr. Vasquez and Dr. Peterson is the 10 amount that that particular defendant pays to resolve its 11 liability in the tort system. And the Court will see abundance Every

12 evidence here that thats what the debtors were doing.

13 time it settled a case, it was settling its liability often 14 together with RPM, Inc. and RPM International, but it was 15 settling it and its affiliates liability. It was not settling

16 the liability of other co-defendants in the system. 17 And, again, just to foreshadow this a little bit,

18 what the Court will also see is that in many cases, THAN was a 19 co-defendant that was named with the debtors in this 20 litigation. And there is some reflection in some of the case

21 evaluation reports that THAN had already settled and that 22 Bondex was evaluating its settlement posture. 23 Returning, though, Your Honor, to the methodology.

24 At Dr. Mullins deposition, he testified that what he was 25 measuring here was something that, although he defined as

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58 1 several liability, he expressly conceded that, in general, the 2 debtors several share as he was calculating it was not the 3 same as an analysis of what the debtor would have paid had it 4 remained in the tort system. And thats confirmed by his

5 rebuttal report where he expressly distinguishes what he is 6 measuring from what Doctors Peterson and Vasquez are measuring 7 by describing their methodology as estimating what the debtors 8 may have paid to settle mesothelioma claims if the debtors had 9 remained in the tort system. And he defines that amount as

10 settlement payments and what he is measuring as several 11 liability. Its, again, just a definitional issue. But we

12 believe that what the Court is to measure here is settlement 13 payments as defined by Dr. Mullin, or what the debtors would 14 have had to pay to resolve their liability had they remained in 15 the tort system. 16 supposed to do. 17 We filed a motion, a Daubert motion, of course, Your That is what this estimation proceeding is

18 Honor, on the basis that Dr. Mullin was not opining on the 19 issue before the Court. But I think whats importation, also,

20 for the Court to address and listen for as we proceed through 21 Dr. Mullins testimony is that while Dr. Mullin refers to peer 22 review literature as the basis upon which he has created the 23 methodology that hes using here, that it has never been used 24 before, certainly not in any mass tort or asbestos bankruptcy. 25 Its never been tried. Its never been tested. Its never

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59 1 itself been peered reviewed. With respect to what Dr. Mullin

2 and -- Dr. Peterson and Dr. Vasquez, their methodology and the 3 way their approach has been has resulted, they have conducted 4 this type of methodology time and again in multiple cases. 5 That methodology has been accepted by courts in estimating 6 liabilities. And each of them, I believe, will testify to a

7 great extent their methodologies have been peer reviewed in the 8 crucible of litigation in a much more significant, meaningful 9 way than sometime academic peer review would allow you to 10 characterize a methodology. 11 12 history. Your Honor, Mr. Gordon talked about the verdict We will be talking and presenting evidence to the

13 Court that reviews the debtors verdict history, the cases that 14 it took to verdict, and the determinations that were reached 15 there as discussed by their defense counsel. In retrospect,

16 reporting to the debtor on this case, is then what the Court 17 will find is, we believe, that generally the issue of both 18 their settlements and their verdict history came down to trial 19 risk. And it came down to the credibility of the plaintiff and

20 the credibility of the plaintiffs product identification. 21 There were, obviously, other factors that went into it, but 22 ultimately we believe that when the debtors were evaluating 23 cases, it was the evaluation of the trial risk largely based 24 upon the credibility of the product ID and the sympathetic 25 nature of the plaintiffs case that generally drove what

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60 1 happened here. 2 thing. And at trial, it seems to have been the same

The verdicts that came out in the debtors favor

3 largely were based upon, at least according to defense counsel, 4 the jurys failure to believe the debtors product 5 identification evidence. And thats consistent with the

6 testimony you will hear from our witnesses, Your Honor, Mr. 7 Iola and Mr. Simon, both of whom are experienced trial lawyers, 8 both of whom specialize in mesothelioma cases. They will

9 testify that at the end of the day, trial risk is the reason 10 that cases settle. 11 Your Honor, we talked a little bit about this, but With respect to the debtors history, in

12 Ill review quickly.

13 the years between 2005 and May 31st of 2010, the debtors spent 14 about $300,000 in indemnity to resolve cases. By contrast, Dr.

15 Mullin estimates that they will only spend about another 125 16 million for the entire future of their cases. 17 his estimation runs through 2050. 18 mesothelioma cases. And I believe

The debtors resolved 5,409

Thats in contrast to Dr. Mullins

19 estimate that only 1,820 cases would be compensable in the 20 future. 21 With respect to our witnesses, Your Honor, you will

22 be hearing from Dr. Peterson, in addition to Mr. Iola and Mr. 23 Simon. We will be eliciting testimony in cross and possibly

24 calling as of cross certain of the debtors other witnesses. 25 With respect to cross, we expect that some of the factual

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61 1 background for our case will come from cross examination of Mr. 2 Tompkins. And we have subpoenaed also the debtors president,

3 Bondexs president John Fleming, who we may call as a cross. 4 And also the current CEO of the debtors, Steve Knoop, who we 5 also may call as of cross. 6 We will also be presenting, to the extent necessary, We have four potential witnesses We do expect to call

7 medical rebuttal testimony.

8 that may be called, depending upon time.

9 Dr. Laura Welch, who is a medical doctor, has extensive peer 10 reviewed publications in epidemiology of asbestos-related 11 diseases, and who this Court has twice recognized as an expert. 12 We may also call Dr. Susan Raterman, certified

13 industrial hygienist who has been studying asbestos exposures 14 for many years. 15 16 Dr. Arnold Brody, a cellular biologist. Im sorry, who was the last? Arnold Brody. Im sorry, Your Honor. A

THE COURT: MS. RAMSEY:

17 cellular biologist who, generally, will address, if called, how 18 asbestos fibers cause cancer at the cellular and genetic 19 levels. And Dr. Leslie Stayner, who is an epidemiologist.

20 Each of those individuals, Your Honor, would counter the 21 debtors testimony with respect to chrysotile not being either 22 causing mesothelioma, or not causing mesothelioma except in 23 certain large quantities of exposure. 24 And I think, Your Honor, this is an appropriate time

25 also to mention that one of the things that we expect that the

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62 1 Court will find through the estimation trial is that the 2 debtors have repeatedly raised these same defenses, the 3 chrysotile defense, the market share defense, time and again 4 throughout its tort history. And that those defenses have been

5 fully considered by the parties as they evaluated settlement 6 and that we are not aware of any case that the debtor has tried 7 that the chrysotile defense was successful and having the jury 8 return a verdict in favor of the defense. 9 We also, Your Honor, will be presenting Jimmy

10 Sinclair, James Sinclair from Chartered Financial to the extent 11 that the parties address the discount rate that should be 12 applied to the Courts estimation. And those would be our

13 witnesses for the estimation trial, Your Honor. 14 15 THE COURT: MS. RAMSEY: All right. Thank you. Thank you. I think, Your Honor, Ill One

16 just conclude with one more -- one or two more statements.

17 is, Your Honor, we do not believe that this is a circumstance, 18 and we expect that we will be making a renewed motion to strike 19 Dr. Mullins testimony, the conclusion of his testimony because 20 we do not believe that he is providing the Court with helpful 21 testimony in connection with his estimation. His estimation

22 will not provide the Court with the ability to adjust the 23 estimates of Dr. Vasquez and Dr. Peterson because his 24 methodology is entirely inconsistent with those methodologies, 25 and is measuring, in fact, something different.

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63 1 And, Your Honor, the last issue I think I would like Mr. Gordon spent some time talking

2 to address are the PIQs.

3 about statistics that the debtors had drawn from those PIQs. 4 As the Court is well aware and was discussed extensively during 5 the motion practice that led to the questionnaires. 6 are a snapshot in time. The PIQs

They reflect only what the plaintiff

7 knows at this time without having had the opportunity, in many 8 instances, to have worked up their cases. We also will be

9 challenging some of the conclusions based upon the facts that 10 are contained in the PIQs themselves that we do not believe 11 were properly analyzed or considered by Dr. Mullin. 12 And with respect to the PIQs, the one area that we do

13 agree with Dr. Mullin on is that there is little difference 14 between the plaintiff population for the PIQs and the 15 historical population. And we think that is another

16 endorsement for why it is more likely than not that the 17 settlement history that the debtor followed in the past, the 18 trial history, its asbestos litigation history in general is 19 the best indicator of what would happen if the debtors were to 20 return to the tort system. 21 The other point I wanted to just hit on again, Your

22 Honor, and I know the Court heard this at the last hearing and 23 heard from Mr. Gordon. There were a substantial amount of --

24 substantial percentage of claims that were resolved without 25 payment, for zero payment in the tort system. And so as the

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64 1 debtors are contending that these settlements -- Dr. Mullin is 2 contending that settlements that were reached for amounts less 3 than $50,000 were reached purely for cost of litigation. 4 no other basis. Had

I think its important to keep in mind that

5 the debtors resolved a substantial number of cases without 6 payment, suggesting that when payments were made, there was 7 more at work than simply that. And our contention, again, Your

8 Honor, will be that we believe the evidence will show that it 9 was trial risk. 10 were resolving. 11 In conclusion, Your Honor, the standard asbestos Thats what the debtors and the plaintiffs

12 liability estimation methods that are used by Doctors Vasquez 13 and Peterson, based on the defendants, or the debtors actual 14 past payments we believe are the best evidence of how they 15 would have faired if they had remained in the tort system. 16 that those estimations are the best and most appropriate 17 standard for the Court to use in reaching its determination. 18 Thank you. 19 THE COURT: Thank you. Mr. Harron, does the Futures And

20 Claims Representative wish to make an opening, too? 21 MR. HARRON: Yes, Your Honor. With the Courts

22 indulgence, Ill remain at counsels table. 23 24 25 THE COURT: MR. HARRON: THE COURT: Sure. Thats fine.

Thank you. You may want to set those so that I can

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65 1 hear you in the microphone, Mr. Harron. 2 3 MR. HARRON: THE COURT: Does that work, Your Honor? I can hear you, but you look pretty

4 uncomfortable. 5 6 7 MR. HARRON: THE COURT: MR. HARRON: Let me give it a try. All right. Your Honor, may it please the Court, Id

8 just like to provide a brief overview of what the Future Rep 9 believes to be the purpose of this proceeding. 10 Your Honor, contrary to what the debtors would have It

11 the Court believe, the debtors are not the victims here.

12 was they, along with RPM International, who jointly made the 13 decision to pursue 524(g) through the initiation of these 14 bankruptcy proceedings. It was they who chose to manufacture

15 and distribute the asbestos-containing products, and the 16 evidence will show that they made the decision to continue to 17 sell those products even after the dangers of asbestos were 18 well known to them. 19 The plaintiffs are the victims, Your Honor. They are

20 involuntary creditors of these estates.

It is these victims

21 whose recoveries will be capped in the aggregate if this 22 bankruptcy concludes with a 524(g) trust. It is the purpose of

23 this proceeding for the Court to estimate the amount of money 24 that is reasonably required to fairly compensate these victims. 25 Your Honor, the Future Claimants Representative will

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66 1 offer the testimony of two experts, which testimony will 2 establish that the amount of approximately $1.1 billion net 3 present value is a reasonable estimate of the debtors 4 liability to pending and future mesothelioma victims. Richard

5 Braun, a highly respected and experienced financial advisor, 6 from the firm of FTI Consulting, Inc., will demonstrate to the 7 Court that the risk free rate of 3.45 percent is a reasonable 8 discounted rate for the purpose of determining the present 9 value of the debtors future liability to mesothelioma victims. 10 Dr. Thomas Vasquez, Your Honor, will establish to the

11 Court how he determined that approximately 1.1 billion is a 12 reasonable forecast of the net present value of the debtors 13 liability to pending and future mesothelioma victims. Dr.

14 Vasquez has extensive experience forecasting asbestos personal 15 injury claims. His testimony will establish that the forecast

16 he developed in this case is based on a generally accepted 17 methodology upon which courts have relied in numerous 18 bankruptcy proceedings. 19 The evidence also will show that Dr. Vasquezs

20 methodology is the very same methodology that was utilized by 21 RPM International for its FCC reporting of the debtors 22 asbestos personal injury liability. Dr. Vasquez forecast what

23 the debtors would pay to satisfy their liability for 24 mesothelioma claims if the debtors remained in the tort system. 25 The debtors, on the other hand, primarily through

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Tompkins - Direct/Jackson

67

1 their expert, Dr. Charles Mullin, will attempt to persuade the 2 Court to rely on a forecast that is detached from the realities 3 of this case. The debtors freely concede that their forecast

4 does not attempt to represent what the debtors would pay had 5 they remained in the tort system. The evidence will show that

6 the methodology underlying Dr. Mullins forecast is radical and 7 is thoroughly flawed. Dr. Mullins methodology also does not

8 fit the purpose for which Dr. Mullins forecast is being 9 offered. Dr. Mullins forecast of the debtors mesothelioma

10 liability for the next 30 or so years is less than what the 11 debtors paid to resolve mesothelioma claims in the tort system 12 in just the last two to three years before the bankruptcy. 13 We would request, Your Honor, that when the Court

14 evaluates Dr. Mullins forecast Your Honor consider the 15 following question. To what end? The claimants vote for a How could

16 trust fund in the amount forecasted by Dr. Mullin.

17 such a trust ever fairly resolve the claims now pending against 18 the debtors, and the claims that will be brought against them 19 in the future? Is Dr. Mullins forecast even a legitimate

20 attempt to estimate the debtors liability to mesothelioma 21 victims, or is Dr. Mullins forecast simply another component 22 of the debtors litigation tactics? 23 24 Thank you, Your Honor. THE COURT: All right. That seems to conclude the

25 opening statements.

Did I miss anyone who wishes to make an

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Tompkins - Direct/Jackson 1 opening? 2 3 THE COURT: (No audible response)

68

Why dont we take a short recess and then All right. Five

4 well start with the evidence, Mr. Gordon. 5 minute recess. Youre free to leave.

Im going to make some

6 corrections on my notes while Im sitting here. 7 8 9 10 11 Tompkins. 12 13 14 15 BY MR. JACKSON: 16 Q 17 A 18 Q 19 A 20 Q 21 A 22 Q 23 A Good morning, Mr. Tompkins. Good morning. Could you introduce yourself to the Court, please. Yes. My name is Kelly Tompkins. THE COURT: Mr. Tompkins. MR. JACKSON: THE COURT: (Recess) Ready to go, Your Honor.

Yes, sir. The debtors would call Mr. Kelly

MR. JACKSON:

KELLY TOMPKINS, DEBTORS WITNESS, SWORN DIRECT EXAMINATION

And by whom are you currently employed? Cliffs Natural Resources Company in Cleveland, Ohio. And what do you do for Cliffs? Im an executive vice president responsible for legal

24 environmental government affairs sustainability in our business 25 in China.

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Tompkins - Direct/Jackson 1 Q

69

And can you tell us what your connection is to Bondex and

2 SPHC, the debtors in this case? 3 4 stopped. 5 6 7 THE COURT: THE COURT: I apologize. MR. JACKSON: No worries, Your Honor. (Pause) All right. The question was in Im sorry. Excuse me. Im going to have that

8 connection to, and then I lost it. 9 10 11 Q MR. JACKSON: THE COURT:

Let me just do it again. Thank you.

All right.

Can you tell us your connection to Bondex and SPHC, the

12 debtors in this case? 13 A Yes. I was employed from the period roughly 1996 through

14 2010 in different capacities. 15 Q And what connection did you have to asbestos litigation

16 involving Bondex and SPHC? 17 A Depending on the time period, I served as the companys And for a And then

18 assistant general counsel, then general counsel.

19 couple of years was the chief administrative officer.

20 in my final two years was the chief financial officer of the 21 company. 22 Q And over what period of time were you employed in roles

23 that had you involved in the asbestos litigation? 24 A Shortly after I started, Id roughly estimate about 1998,

25 maybe late 97, I started getting involved overseeing the

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Tompkins - Direct/Jackson 1 asbestos litigation when the then general counsel, Paul 2 Granzier, retired. 3 Q And did your involvement continue throughout your

70

4 employment? 5 A Yes, it did. As I noted, in different capacities, but I

6 was involved with the asbestos litigation pretty much my whole 7 career. 8 Q Lets backup and just get a little bit of your educational

9 background, if we could, sir? 10 A Sure. Went to Mercyhurst College in Erie, Pennsylvania, Cleveland-Marshall Law graduate 1981. I

11 graduating in 78.

12 was employed by Reliance Electric Company, which was an Exxon 13 affiliate. From roughly 1981 through the early 90s joined RPM

14 as I mentioned in 1996, and then joined Cliffs in 2010. 15 Q Now, when you started with RPM, Inc., how quickly did you

16 get involved in the asbestos litigation? 17 A As I mentioned, when I first started at RPM I had really

18 very little involvement with the asbestos litigation because it 19 was really not a significant matter, really, for the company. 20 I was involved with some of our other litigation at the time. 21 But when Mr. Granzier retired, I took over managing the 22 litigation, and, again, that would have been roughly in the 23 late 97, 98 time period. And I oversaw the litigation,

24 which, again, at that time was largely managed by our 25 third-party insurers at the time.

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Tompkins - Direct/Jackson 1 Q What did you do to get up to speed on the asbestos

71

2 litigation that had taken place prior to your taking over for 3 Mr. Granzier? 4 A Well, in addition to just looking over general records and

5 files of the company, I conferred with our then national 6 coordinating counsel, Glenn Bowers, who is based in Columbia, 7 South Carolina. And met with Glenn and met with a few of our

8 local counsel just to get a feel for how the litigation was 9 being handled. And then attended a couple of the cautionary

10 meetings that were conducted between our third-party insurers 11 at the time just to get a feel for how the litigation was being 12 managed. 13 Q And what did you learn about the asbestos litigation

14 against Bondex and SPHC at that time? 15 A Well, in the early years, again, it was really not a At the time, we had

16 material area of litigation for us.

17 third-party insurers, as I mentioned, covering a significant 18 amount of the cost. 19 unremarkable. The claims activity was really pretty

A pretty flat line from when I learned that we It was a

20 had our first asbestos lawsuit in, roughly, 1980. 21 pretty unremarkable history of claims activity.

So, you know,

22 when Mr. Granzier left, in fact, I remember him saying to me, 23 at least you wont have to worry about the asbestos litigation, 24 which seemed at the time to be, again, pretty unremarkable in 25 activity, if not on the wane.

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Tompkins - Direct/Jackson 1 Q Now, there have been lots of different names associated

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2 with the Bondex entity, which now called Specialty Products 3 Holding Company. Have you put together a chart that will sort

4 of help walk through that history? 5 A 6 Q Mm-mm. And do you have in front of you what weve marked as

7 Debtors Demonstrative Exhibit D-1? 8 A 9 Yes, I do. MR. JACKSON: And, Your Honor, this is one of the

10 demonstrative charts, I think, that Mr. Gordon handed up to 11 you. 12 13 Q THE COURT: Yes, I have it. Thank you.

Can you tell us, sir, sort of what this demonstrative

14 exhibit tells us about the corporate history? 15 A Well, its a fairly detailed one, as you can see. I can

16 briefly walk through the corporate history. 17 Q 18 A Would you please, sir? Sure. Starting in the upper-left box, Republic Powdered

19 Metals, which now we know as Specialty Products Holding 20 Corporation, was formed in 1947. Then in 1963 a company was

21 incorporated, R period, P period, M period, which was a wholly 22 owned subsidiary of Republic Powdered Metals at the time. In

23 1966 Republic Powdered Metals acquired assets and liabilities 24 of the Reardon Company. Then at the time of that acquisition,

25 Republic operated the two businesses that it acquired as

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Tompkins - Direct/Jackson 1 divisions, the Republic Powdered Metals division and the 2 Reardon division. Later in 1971, the previous 1963 company,

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3 R.P.M., had changed its name to Republic Powdered Metals, Inc., 4 and then, in turn, there was a name change to RPM, Inc. without 5 the periods. 6 Then in 1972 the previous Reardon division, now

7 Bondex International, was formed as a wholly owned subsidiary 8 of RPM, Inc. An in connection with that establishment of

9 Bondex as a wholly subsidiary, Bondex acquired the Reardon 10 Company division assets and liabilities from RPM, Inc. And at

11 that time, Republic Powdered Metals, Inc. also acquired the 12 Republic Powdered Metals division from RPM, Inc., which 13 ultimately resulted in RPM, Inc. becoming a holding company as 14 of May 31, 1972. 15 16 Q Yes. Would you like me to continue? I was going to say, then after 72 I know we skipped So what happens in 2002?

17 to 2002. 18 A

Well, in 2002, RPM International was formed and,

19 ultimately, became the parent and publically traded holding 20 company in October of 2002, RPM International being a Delaware 21 corporation. And, likewise, Bondex, which had been an Ohio And then

22 based corporation, was incorporated in Delaware.

23 bringing it forward to May 2010, RPM, Inc. changed its name to 24 Specialty Products Holding Corp. 25 Bondex filed for bankruptcy. And at that point, SPHC and

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Tompkins - Direct/Jackson 1 Q 2 A 3 Q All right. Thank you, Mr. Tompkins.

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Youre welcome. Going back to talk about the asbestos litigation itself,

4 and in terms of your efforts to come to understand it during 5 the course of your time when which you were involved with it. 6 Can you tell us sort of what the products were that were at 7 issue? 8 A The principal product at issue was a joint compound It was typically used, I would describe it like a

9 product.

10 patch and repair product sold in hardware stores, sold in small 11 quantity containers. 12 usage. Primary usage would have been in-home

If you were, for example, you know, refinishing your

13 basement and youre seaming between two drywalls, or patching 14 some holes in the wall. So it was, again, typically a home-use

15 product and sold in small quantities locally in hardware 16 stores. 17 Q And going back to the demonstrative we marked as D-1, can

18 you tell us where that product line of joint compound, where it 19 came from in this corporate history? 20 A Yes. That would have come from the Reardon Company back

21 from the 1966 acquisition. 22 Q Okay. Thank you, sir. And were there any other products

23 that were at issue in the asbestos litigation? 24 A There was some roofing products, which were occasionally But by far and away, the joint

25 involved in the litigation.

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Tompkins - Direct/Jackson 1 compound product was the principal product at issue in the 2 litigation, the asbestos litigation. 3 Q What do you know about the way, or the packages in which

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4 the joint compound was marketed? 5 A Well, as I testified to a few minutes ago, the products

6 were in very small containers, you know, occasionally a dry 7 product, or it could be mixed. But it was such that the

8 quantity of product, which, you know, would be a quart size, 9 gallon size container, as opposed to the big commercial size 10 containers that you might find from a U.S. Gypsum, or some of 11 the other larger commercial oriented joint compound 12 manufacturers. Which was consistent, again, with someone using

13 it occasionally in-home for, as I said, patch and repair, or 14 small project work at home. 15 Q 16 17 Q 18 A Where was this joint compound made? THE COURT: Im sorry, where was it?

Where was it made? The primary manufacturing location was in St. Louis, To my recollection, Bondex also had a -- there was

19 Missouri.

20 an operation in Toms River, New Jersey, if I recall correctly, 21 but I think the main area was St. Louis. 22 Q As it ended up relating to the asbestos litigation, was

23 there any significance to the East St. Louis facility? 24 A It was always later on a little puzzling to me. Bondex

25 had been in St. Louis for many years, it was a familiar company

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Tompkins - Direct/Jackson 1 in St. Louis, which is really in fairly close proximity to 2 Madison County, Illinois, but it wasnt until much later that 3 we saw claims filed in Madison County. But St. Louis is

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4 reasonably close geographically to Madison County, Illinois. 5 Q If I could, sir, and you covered this a little bit before,

6 but I want to make sure that we get this clear on the record. 7 So would you take us back to when you first started your 8 association with the asbestos litigation and tell us about the 9 type of case that was being filed? 10 A At that time, as I started to learn a little bit more

11 about our litigation, and this would be, again, in the late 12 90s when I joined the company, the litigation, again, was low 13 in volume of cases. And wed occasionally have what Id

14 consider an episodic case where wed have every once in a while 15 a case that presented a plaintiff who alleged exposure to our 16 product using it at home. 17 of exposure. There were no other alleged sources

So that to me presented the type of claim that

18 might be consistent with the product line and how it was used 19 and how it was distributed. And, again, those cases, you know,

20 I would consider at the time high-value, or potentially 21 high-risk cases because the credibility of the product 22 identification, the type of usage, again, seeing consistent 23 with what one might expect given the type of product we were 24 dealing with. 25 Q What about those cases made them high value, or high risk,

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Tompkins - Direct/Jackson 1 in your view? 2 A You know, again, these were -- if we had a plaintiff who

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3 in a complaint had not alleged many, if any, other types of 4 exposure and credibly indicated that they purchased the product 5 at a retail hardware store consistent with our distribution, 6 they alleged that the product was used and their exposure to 7 the product was in-home and there was no other, you know, 8 credible sources of exposure, as compared to someone who might 9 be exposed to product -- or asbestos on a sustained 10 occupational basis, that type of plaintiff, you know, I would 11 consider to be a high-value, potentially high-value claim 12 where, you know, Bondex may have exposure in a case like that. 13 Q And I apologize, I forgot. I was going to ask you a

14 question about the upper right-hand corner of demonstrative D-1 15 where it talks about RPM International. Before I forgot that,

16 I wanted to ask you what role, if any, did RPM International 17 have in the asbestos litigation? 18 A No role. I mean, it was, first of all, a company that It never manufactured or sold

19 didnt exist until 2002. 20 asbestos products.

RPM International is occasionally named in

21 cases after it was filed, but I attribute that largely to 22 either name confusion, or some other effort to, you know, 23 confuse the case. But there would be no credible basis for RPM

24 International to be in the litigation, in my judgment. 25 Q Thanks, sir. And I apologize for sort of getting that

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Tompkins - Direct/Jackson 1 slightly out of order.

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How did the asbestos litigation evolve

2 over your time which you were associated with it? 3 A I guess Id look at the evolution from a couple of As I said, when I first got into the litigation,

4 perspectives.

5 I really didnt see it as a significant material litigation of 6 the company. But as we closed in on the 2000, early 2000 time

7 period, and, again, at that time the litigation was covered by, 8 for the most part, by our third-party insurers, but when we got 9 into the early 2000 period, there seemed to be a different 10 dynamic taking place in the litigation. 11 activity escalated significantly. 12 We found ourselves named less in what I would The volume of claims

13 consider these episodic, or cases that were consistent with 14 Bondexs product and a claimant that had exposure, or alleged 15 exposure consistent with the usage of the product. We found

16 ourselves named with a myriad of other defendants, plaintiffs 17 that were -- that had other industrial, or other sources of 18 occupational exposure. They may have been industrial

19 claimants, commercial construction trades, you know, pipe 20 fitters, electricians, et cetera, naming exposure and naming 21 Bondex as the source of their particular 22 asbestos-related illness. So the dynamic of the litigation

23 changed from that standpoint. 24 In my judgment at that time, because of the number of

25 other major players in the asbestos litigation that filed

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Tompkins - Direct/Jackson 1 bankruptcy at the time, and, again, we were dealing in joint 2 and several liability states, for the most part, so we were 3 finding ourselves, in a sense, in the system picking up the 4 share, potentially having to pick up the share of other 5 insolvent defendants. And then, lastly, there seemed to be a

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6 very concerted focus on joint compounds at that time.

So there

7 were a number of dynamics that seemed to be taking place and 8 the litigation was much different in that early 2000 period 9 than the, roughly, 96 to 2000 when I was first exposed to it. 10 Q And when this trend of increasing cases started, was that

11 something you expected to continue? 12 A At the time I didnt. It was -- I really wasnt sure what

13 we were dealing with.

But it was such -- what seemed to be

14 such an aberration, or such a precipitous change in the 15 litigation, it was hard to really get a handle on what was 16 going on, other than the dynamics I alluded to earlier in terms 17 of the other bankruptcies and this, you know, focus on joint 18 compounds. And it just seemed odd to me that if Bondex had

19 been in the litigation since 1980 with this flatline, 20 unremarkable level of claims activity, and then for whatever 21 reason things just simply escalated in that early 2000 time 22 period. 23 Q Did you believe that the increasing number of cases

24 reflected some different view of Bondex liability? 25 A Im not sure if it was different -- I dont know how there

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1 could be a different view in the sense that we had been in the 2 litigation since, you know, roughly 1980. 3 Bondex was well known. Information about

Many of the asbestos cases, of course,

4 theres a number of defendants typically on the face of a 5 complaint and, you know, Bondex was right up on the top, you 6 know, after a couple of other defendants that begin with the 7 letter A. And it just seemed like the system was starting to

8 drive filings, as opposed to anything really new about Bondex, 9 or the evidence, or the state of awareness of Bondex as a 10 defendant in the litigation. 11 driving it. 12 Q And as you looked at these cases that were coming online There was a different dynamic

13 in the 2000s, did that affect your view of the value of those 14 cases? 15 A It started, from my standpoint, again, as the general

16 counsel at that time, I started to really look at the total 17 cost of the litigation. I started to see, again, just by the

18 sheer volume the amount of defense costs that we were spending, 19 or the need to prepare cases, or look at having to prepare so 20 many cases, you know, the total cost of litigation started to 21 be a very significant factor at that time. 22 Q You also mentioned earlier the concept of picking up Can you

23 shares for other people in joint and several states. 24 expand on that and tell us what you mean by that? 25 A

When I say pick up share, in the sense of being in a joint

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Tompkins - Direct/Jackson 1 in several jurisdiction where, you know, the other potential 2 liable defendants, or other sources of exposure that the

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3 claimant could recover against either werent currently paying, 4 or were unable to pay because of bankruptcy filings, or theres 5 be a delay in payment. So it seemed that we were almost a

6 solvent bystander that became much more of the target of the 7 litigation just because of, you know, being one of the solvent 8 players that the plaintiff could recover against, irrespective 9 of what our true liability may be to that given claimant. 10 Q Now, was there any change in sort of places in which these

11 lawsuits were being filed as you saw the increase in filings? 12 A Yes. We -- you know, its been a number of years, I dont But to my recollection,

13 have exact numbers that I can recall.

14 I dont recall seeing much of any claims activity in, for 15 example, Madison County, Illinois. So from roughly 1980 right

16 up through the early 2000 period, very little, if any, filings 17 in Madison County. And then Madison County became the So Madison

18 jurisdiction that we were spending resources in.

19 County became one of the -- well, it was the principle area of 20 claims activity, again, starting in that early 2000 period. 21 Q And did cases filed in Madison County have different

22 values, in your view, than cases filed in, I dont know, lets 23 pick Cleveland, Ohio? 24 A Well, I guess Id answer it this way. I dont think they

25 had a different value in the sense of if you try to get to the

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Tompkins - Direct/Jackson 1 true liability.

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But because of the way that the Madison County

2 docket system worked, for example, you know, we would typically 3 have -- at the end of a week I would be looking at, and my 4 local defense counsel would be looking at 8, or 10, or 12 trial 5 settings on a Monday. So Im sitting there as the general

6 counsel trying to understand how I can prepare 8, 10, 12 cases 7 that are set for trial on Monday. I dont know which case the

8 plaintiffs firm may choose to press, so I have either the 9 choice of working up all the cases so Im not caught 10 flatfooted, or start to think about alternative ways of 11 resolving those cases just, you know, to bring some economic, 12 you know, predictability to the situation. 13 Q You talk about these cases all be set on a Monday.

14 Couldnt they all be tried at the same time? 15 A Well, you know, I dont remember what the capacity of the

16 courtroom was at the time, but from a defense standpoint, I 17 didnt want to go in, as I said, be caught flatfooted and walk 18 in on a Monday morning and say, well, I made a guess that Im 19 going to prepare case number 7 on the assumption that that 20 ones going to go to trial and not prepare the rest, and then 21 find out that the one thats really going is one that I hadnt 22 prepared for. So I simply, you know, at a certain point we had

23 to just assume any one of them could go, so prepare the defense 24 and work up the case accordingly. 25 Q Now, were there certain law firms that were handling these

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Tompkins - Direct/Jackson 1 cases that were being filed in Illinois? 2 A Well, there are a number of firms.

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The firms that I would

3 recall that I think had the, at least most of them that I can 4 recall, would have been the Simmons Cooper firm, Cooney Conway 5 firm. You know, there were a couple other firms. Mark

6 Laniers firm, Texas.

Despite being in Texas, Marks firms

7 cases were being filed, or would have been filed in Madison 8 County. So those three firms in particular, but Im sure there

9 were others that Im not recalling at this time. 10 Q Well, did you ask that we put together a chart showing the

11 filing activity of the Cooney, Lanier and Simmons law firms? 12 A 13 Q Yes. And if I could, Id like to show you what weve marked as

14 Debtors Demonstrative D-2 and ask you, sir, if you could sort 15 of tell us what this shows? 16 A Well, it -- I guess it certainly illustrates my testimony

17 here a few minutes ago in terms of the experience that we had 18 in that early 2000 period. I guess Id make the assumption

19 that if you go back from the beginning of the litigation from 20 1980 to 1999, I dont think the bars would be any different. 21 Thered be virtually no activity. But by 2003, you know, we

22 were dealing with, you know, 500 cases just from those three 23 firms with I would say the vast majority of which were filed in 24 Madison County. Some of them might have been filed in Cook

25 County, but I think most in Madison County.

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Tompkins - Direct/Jackson 1 Q And before I forget, do you know whether this is on a

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2 fiscal year or a calendar year? 3 A Its been a few years, but I would assume that its on --

4 these are fiscal year -- fiscal year filings. 5 Q And just so we get it down, can you tell us what the

6 applicable fiscal year time periods were? 7 A Yeah. Most things have changed. RPMs fiscal year ended

8 May 31. 9 Q Okay. Now, the other thing I suppose I ought to make

10 clear at this point is, sir, can you tell us what your role in 11 the resolution of asbestos cases was? 12 A What was your authority?

Well, for certainly the period in which I was the general

13 counsel of the company, you know, I had, really, the ultimate 14 authority to decide on a settlement. I think we need to look

15 at it in two different periods, however, because there is a 16 period of time, as I mentioned, that the insurers, third-party 17 insurers covered the litigation. 18 Q And were going to talk about the insurers in just a

19 minute. 20 A Okay. But I had the ultimate authority, I guess, to

21 answer your specific question. 22 Q Okay. Thank you, sir. I appreciate that. Now, sir, if I

23 could, Id like to back you up in time a little bit to before 24 you started seeing this dramatic rise in the number of cases. 25 And Id like to sort of get you to describe for us what the

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1 approach was to asbestos litigation, sort of pre-spike, if you 2 will? 3 A Sure. Not having been involved with asbestos litigation

4 before I joined RPM, but having been a litigation lawyer in 5 Texas working for Exxon at the time, I kind of thought the 6 asbestos litigation when I joined RPM was, you know, much like 7 any other tort litigation. 8 number of cases. You know, there were a manageable

You know, youd make decisions, again, at

9 this time with the insurers about whether a case should be 10 settled. But, you know, you could work up a defense of these

11 cases just given the, you know, the type of cases that were 12 filed at the time and the number of cases. So I guess I looked

13 at it, perhaps in hindsight, naively, as like any other product 14 liability case in the tort system. 15 Q You mentioned a couple of times the existence of insurance Can you tell us about that coverage? We had several different third-party insurers. And

16 coverage. 17 A Yes.

18 for the most part up until the insurers claimed exhaustion, 19 there would be periodic negotiations of cost sharing 20 arrangements. But the simple point being the third-party The

21 insurers covered 90 percent of the cost of the litigation. 22 insured picked up the other 10 percent. And it was a

23 collaborative effort in terms of reviewing cases between local 24 counsel input, the insurers input, and mine. But the insurers

25 really drove most of the settlement decisions at the time

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1 because they were carrying most of the economic risk picking up 2 90 percent of the cost. 3 Q 4 A And did the policies also include defense costs? My recollection that most of, if not all of the policies,

5 I guess I cant say for certain all of them, but had defense -6 the insurers had an obligation to defend the litigation outside 7 of their indemnity limits. So as long as there was a dollar of

8 indemnity limits available, the insurers had a, essentially, an 9 unlimited obligation to defend the litigation, which became an 10 interesting dynamic as we moved later on in the litigation. 11 Q 12 A Well, what kind of interesting dynamic did it become? Well, as the claims escalated, as evidenced just by this

13 chart of these three firms, it started to become clear to me 14 that the insurers, it was in their economic self-interest to 15 get off the risk. And by meaning of getting off the risk,

16 exhausting their indemnity limit, so they werent, then, 17 subject to the obligation to defend. Because the defense costs

18 were escalating and it seemed like we were increasingly being 19 pressed to settle cases, paying some pretty high prices to 20 settle cases. And as their indemnity limits started to go

21 away, I could see that, again, it seemed to be in their 22 economic self-interest to get off the risk and avoid having 23 this extraordinary defense cost obligation. 24 Q 25 A How long did the insurance coverage last? Well, the insurers claimed exhaustion and we challenged

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Tompkins - Direct/Jackson 1 that and eventually filed an insurance coverage action.

87 But I

2 believe it was around 2004 that the third-party insurance was 3 no longer paying. 4 Q So after the insurance coverage issue has gone away, did

5 that affect the way in which you handled the asbestos 6 litigation? 7 A It did, I guess, in two ways. One, the insurers up to the

8 point of their exhaustion didnt seem to be particularly 9 interested in exploring different defense efforts, you know, 10 exploring different types of experts. You know, the idea of

11 trying to amount a more aggressive defense of the litigation 12 wasnt something the insurers seemed to want to do. So at that

13 point when it was solely on the company, the insurer was 14 carrying the cost of litigation, we started to look at, you 15 know, different ways to try to defend ourselves where we could. 16 That effort wasnt quite as successful in Madison County and 17 led to different exploring alternative ways to resolve cases in 18 that jurisdiction, in particular. 19 the bigger changes. 20 Q All right. So focusing in on sort of the Illinois cases, But that was probably one of

21 what kind of approach did you apply there? 22 A Well, as I mentioned earlier, the nature of the, you know,

23 the system, the multiple trial settings, the joint and several 24 nature. And then there was also an Illinois case, I think it

25 was the Lipke, if Im pronouncing it right, Lipke case, which

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Tompkins - Direct/Jackson 1 really made for a very difficult situation where you couldnt

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2 argue other sources of exposure -- the jury couldnt hear other 3 sources of exposure until after. So they might find against

4 Bondex and then be exposed to, you know, learning about what 5 other sources of exposure were there. So simply put, the

6 Madison County system really was geared to, my view, of forcing 7 settlements. And so we -- thats really when we started to

8 explore different ways, again, focused on the total cost of the 9 litigation, different ways to deal with the cases in that 10 county. And also, I would add, at a point in time our defense

11 costs in Madison County alone, it might have included Cook 12 County, but I think predominantly Madison County, went from 6 13 to upwards of $10 million just in that jurisdiction for defense 14 costs. So that -- again, that total cost of litigation became

15 very significant causing us to look at alternative means. 16 Q Well, can you tell us why you just didnt decide to pursue

17 every case to either a dismissal or a verdict? 18 A I guess if we can live in the fantasy world of saying

19 there is, you know, unlimited infinite resources for defense 20 dollars, I guess theoretically we could do that. But as a

21 general counsel, Im living in the reality of what the system 22 is, what we have in terms of filings, and having some 23 obligation of the company to try to steward our resources and 24 manage the total cost of litigation as best I could. So I

25 simply couldnt possibly defend, let alone take to trial, every

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Tompkins - Direct/Jackson 1 case filed in Madison County. 2 way of doing things. 3 Q That just was not a realistic

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What do you mean that you couldnt afford to take them all

4 to trial, or to dismissal? 5 A Well, at one hand there was -- as I said, if I had

6 unlimited, you know, resources to do it, but I dont think you 7 could -- even with extraordinary resources, the sheer number of 8 filings and having, you know, virtually every week seeing 9 multiple cases set for trial, it just simply became -- it would 10 be irresponsible as a general counsel, in my judgment, to not 11 look at other ways to try to resolve the litigation, which 12 ultimately, you know, ended up, again, in some different 13 arrangements with different firms. 14 Q You mentioned the cost to Bondex. What did it cost Bondex

15 to take a case to trial? 16 A You know, I -- again, going back to my recollection, at

17 least a quarter of a million bucks, you know, maybe upwards of 18 300, 300 plus thousand dollars to take it through trial. 19 Q All right. So youve got these cases in Illinois that

20 youve talked about, and then youve got these other cases in 21 other jurisdictions. How did you decide to deal with these

22 groups of cases, if you will? 23 A 24 Q 25 A In both sort of buckets, if you will? Buckets. Okay. Whatever you want to put them in.

Well, again, outside of Madison County, and we were

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Tompkins - Direct/Jackson 1 defending cases in a number of other states, wed do the best 2 we can to, you know, defend the case, work it up. And if it

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3 got to a situation where the cost of settling the case just 4 made sense economically because of what we would have to pay 5 both in terms of defense costs incurred at that point, or take 6 it all the way to trial, it just became a, you know, a cost of 7 -- an effective way of resolving it. 8 individual case basis. 9 trial. We would do that on an

But we also took a number of cases to And

But in Madison County it was a different dynamic.

10 in Madison County, as I mentioned, we looked at alternative 11 ways of resolving, you know, groups or blocks of cases, and did 12 that with, you know, with a handful of firms. In particular,

13 the three firms that are on the claims exhibit. 14 Q 15 A 16 I took it off too early. Thats all right. MR. SHEPPARD: Your Honor, can we have that marked I apologize.

17 for identification? 18 MR. JACKSON: It is. Its been marked as Debtors

19 Demonstrative D-2. 20 21 MR. SHEPPARD: MR. JACKSON: Thank you. No worries. I missed that. Sorry.

The other one was D-1,

22 just if youre following the log by number system. 23 24 25 Q MR. SHEPPARD: MR. JACKSON: Got it. You bet. Thank you, sir.

Now, what youve been describing to us after the coverage

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Tompkins - Direct/Jackson 1 ended, was that a change sort of in the strategy of defending 2 these cases? 3 A Yes. I mean, it was a change in the sense that, all

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4 right, we did not have a third-party, in this case an insurer, 5 assisting in paying costs. So it became completely, you know, And so we looked at ways

6 the obligation of the insured to pay.

7 of how can we, you know, in the right kind of case, in the 8 right jurisdiction, you know, are there defense strategies that 9 would be effective. Again, ultimately looking on the total And then in Madison County, again,

10 cost of resolving a case.

11 we looked at alternative ways of resolving litigation, often 12 involving grouping -- or the plaintiffs grouping together a 13 bundle of claims, or actually filed lawsuits and negotiate a 14 resolution of that bundle of claims. 15 Q Now, youve mentioned several times sort of the settlement What Id

16 approach with the Cooney, Lanier and Simmons firms. 17 like you to do is sort of have you tell us how those 18 settlements worked.

And, perhaps, the easiest way to do that

19 is to ask you to look at whats been marked as Debtors Exhibit 20 21, and you should have copies in front of you. 21 MR. JACKSON: And, Your Honor, Debtors Exhibit 21 is

22 a huge compendium of all the settlements with these three law 23 firms. What Ive done is just selected a sample of the And so Ive given the other side

24 earliest ones from each. 25 that.

Id like to give the Court just this excerpt from it.

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Tompkins - Direct/Jackson 1 2 3 4 Q THE COURT: All right. Thank you.

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MR. JACKSON: THE COURT:

I think it will make it easier. Thank you.

Thank you.

So if you could, Mr. Tompkins, Id ask you to focus in on

5 the first letter in the pile here marked as Defendants Exhibit 6 21. 7 A And can you tell us what that is? Yes. Exhibit 21 is a letter dated December 20, 2006

8 between Michael Mulvihill and William, or as I recall, William 9 Chip Collins, who was an associate at the Bowers Orr firm, 10 which at that time was our national coordinating counsel. 11 Q Can you sort of use this exhibit to tell us how the

12 settlements with these three law firms worked? 13 A 14 back. Mm-mm. Well, in this -- and, again, Im just tapping This was a You can

I will give you the best of my recollection.

15 negotiated, you know, settlement of a group of cases.

16 see the cases delineated in the, you know, the attached pages. 17 And my recollection is that after the name there is a file 18 number, and these are, for the most part, Madison County 19 filings, and then a dollar amount. But there was a total

20 settlement in this case for $4.6 million and it covered all of 21 the delineated cases that are attached. And then there was an

22 agreement to pay the 4.6 million, essentially, in three 23 installments, beginning in January of 07 through June of 07. 24 Q All right. Now, I think you were referring in the first

25 paragraph to the 4.65 million?

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Tompkins - Direct/Jackson 1 A 2 Q 3 A 4 Q Yes. And that covered all the cases that were listed? Yes. Now, did those cases represent some time period?

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How were

5 the cases selected? 6 A The plaintiffs firm, in this case the Cooney Conway firm,

7 would have selected the cases to go into this block, or group 8 settlement, and, likewise, would have made the allocation of 9 the dollar amounts. So we would have not had any insight, or

10 input into the dollar amounts associated with each of these 11 individual cases. 12 Q Well, sir, if you flip the page, what youre -- look at

13 Ralph Baumgardner (phonetic). 14 A 15 Q 16 A 17 Q 18 A Yup. There was no negotiation of the $2,000 number? No. What number was negotiated? The aggregate dollars, the 4.65 million was what was

19 negotiated, and the plaintiffs determined how many cases would 20 go in and the plaintiffs firm made whatever allocation 21 decision of how that 4.6 million would be allocated to each 22 individual plaintiff. I would have no input on this, or no

23 insight as to why one got 2,000 and another one got 140,000. 24 Q Now, you mentioned this before, but if you go back to the You said

25 front page of the first exhibit here, Exhibit 21.

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1 that it was set up to be paid in three different installments. 2 Why was that? 3 A Well, from our standpoint, you know, it was certainly

4 advantageous for us from just a pure cash flow standpoint to 5 pay this significant amount of money over, you know, over a 6 couple of months, in this case, essentially, over a six-month 7 time period. So it was really a means of managing cash flow

8 from our standpoint. 9 Q Okay. And, again, flipping to the first page. What level

10 of examination, or review of the cases involved did Bondex 11 engage in? 12 A To my knowledge, virtually no analysis of any of the Again, what cases were put in and how the

13 individual cases.

14 dollars were allocated, that was a decision made by plaintiffs 15 counsel. 16 Q 17 A But why didnt you take a hard look at these cases? Well, it was, essentially, an economic decision that said,

18 all right, I dont know in any one of those individual cases 19 whether Bondex should be properly dismissed. Whether in any

20 one of those cases, there may be a number of those cases where 21 the plaintiff might not have been able to even establish 22 product ID to Bondex. Whether or not the alleged diseases was

23 -- we didnt do any discovery on these cases, or at least to my 24 recollection we wouldnt have done any discovery on these. It

25 was simply a means of on a total cost-of-resolution basis to

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1 resolve a group of cases that simply would have been untenable 2 to try to, you know, again, prepare each one for trial. 3 Q All right. Let me, then, ask you to flip to the next

4 letter in Exhibit 21, and ask you, sir, if you can tell us what 5 this is? 6 A What Ive got here, this looks like Lanier -- the Lanier

7 firm on April 15, 2005 letter agreement. 8 Q 9 A 10 Q 11 A This one seems to be addressed to you, is that right? Yes, it is. Why? I negotiated an initial group of cases with Mark Lanier And,

12 and one of his partners, or associates at the time.

13 again, my recollection would be this is simply the letter 14 memorializing that particular group settlement. I think we had

15 another one or two with the Lanier firm, but this one I was 16 involved with. 17 Q And I notice in the middle of the first paragraph it says,

18 covering all cases in which the Lanier firm represents, or is 19 associated in the states of Texas, Illinois and Louisiana, do 20 you see that? 21 A 22 Q 23 A Yes, I do. Why those states? Well, you know, the Lanier firm had a number of cases, and

24 as I think I testified earlier, even though they were a 25 Houston, Texas based firm, Mark made it very clear to me when I

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Tompkins - Direct/Jackson 1 negotiated this that a number of those cases were filed, or 2 were destined to be filed in Madison County.

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And, you know, he

3 had cases, as well, as noted in Texas and Louisiana, but 4 certainly Madison County was a significant part of the cases. 5 Q If you continue down in the same paragraph where it says

6 that parties further agree that for the individuals whose 7 claims are resolved, Bondex/RPM assigns any and all causes of 8 action it may have against its asbestos fiber supplier THAN. 9 Do you see that, sir? 10 A 11 Q 12 A Yes. Whats that about? Again, my recollection at the time is that Mark was very

13 interested, and I dont know if because he had another 14 potential claim against THAN with another asbestos defendant, 15 but he was interested and attached some value in getting 16 whatever rights Bondex may have had, or claims Bondex may have 17 had against THAN, and wanted those, you know, included in the 18 settlement, so we put them in. 19 Q 20 A 21 Q Now, if you go to the second paragraph. Mm-mm. Looks like this covers approximately 270 plaintiffs, do

22 you see that? 23 A 24 Q Yes. Mm-mm.

And then theres a number down here of not to exceed, is

25 that 22 million?

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Tompkins - Direct/Jackson 1 A 2 Q Yes. Mm-mm.

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How did the number of plaintiffs and the $22 million

3 number come to be? 4 A Well, we negotiated -- you know, Mark, or his firm knew And

5 how many claims he was willing to put into a settlement.

6 we didnt have any particular insight into the value of any one 7 of those claims. But, again, knowing that this was a means by

8 which, you know -- I had -- Ill say that I had respect for the 9 Lanier firm that they typically had meso cases and Marks track 10 record was good as a trial attorney. And, you know, the

11 negotiation was how many of your claimants, you know, can be 12 put into a block settlement and how much, you know, dollars are 13 we willing to pay. And in this case we were able to settle 270

14 cases for the 22 million, but not to exceed was that, you know, 15 we didnt want to get into a deal where, you know, were trying 16 to cap. And, again, looking at the total cost of litigation

17 trying to cap the amount that we were going to pay to resolve 18 these. 19 Q If we could, sir, could you then flip to the last document

20 that we have in the Exhibit 21. 21 A 22 Q 23 A 24 Q 25 A Yes. Its the Simmons Cooper letter. Mm-mm. And could you just tell us what that is? Yes. This is a February 7th, 2007 letter between Michael

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Tompkins - Direct/Jackson 1 Angelides with the Simmons Cooper firm, to William Chip 2 Collins, again, with the Bowers Orr firm who, I think, as of 3 February 07 was still our national coordinating counsel.

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And

4 this letter is confirming, you know, what the Simmons Cooper 5 firm is willing to -- the number of cases and which cases were 6 being offered to be settled in this particular block or group. 7 Q 8 A 9 Q And the block or group is reflected in the attached pages? Yes. Yes.

If I could, Id just like to sort of focus in on, if you

10 would, the first 15 entries. 11 A 12 Q 13 A Mm-mm. Yes.

And tell us what those entries represent? Well, as the column headers indicate, you know, Bondex is

14 shown as a defendant, the particular name of the claimant, the 15 case number. So by all indications, these were actually filed At least the first 15 And

16 lawsuits as opposed to unfiled claims.

17 indicate that they were filed in Madison County, Illinois. 18 as you can see, I guess confirming what Ive testified to

19 previously in this case, a trial date of February 12, 2007 for 20 all 15 of those cases. 21 mesothelioma. The disease, as noted here,

And then a dollar amount, which, again, much

22 like the Cooney Conway settlement that we looked at, we would 23 not have had any input into the -- you know, how the dollars 24 were allocated in each individual case. 25 would have done that. The plaintiffs firm

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Tompkins - Direct/Jackson 1 Q So would you have had any understanding of why Mr. Couch

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2 (phonetic), the first one, would have only gotten $1,000? 3 A 4 Q 5 A 6 Q 7 A 8 Q None whatsoever. Or why Mr. Duncan, the sixth one, would have got 400,000? No. We had no input into that at all.

And then if we go to the very last page. Mm-mm. Does that tell you what the total number of this

9 particular settlement was? 10 A Yes. In this case it rounded to 6.1, 6.09 million, and

11 indicating above that the -- this was, I think, was structured 12 on an installment basis. So the first installment payment

13 against that settlement was $2 million on December 1st, 2007. 14 Q Now, the three settlements we have, we have one in 05,

15 one in 06 and one in 07 with these different firms. 16 A 17 Q Mm-mm. And I was trying to keep a rough tally as we talked about

18 the numbers, but it looks like a little bit over $32 million 19 total for those three years. 20 A 21 Q Mm-mm. Do you have any understanding of how that compared with

22 the total settlement payments you were making for all 23 mesothelioma cases in that time period? 24 A I dont have numbers that I can sit here and recall. But

25 knowing these three firms and the magnet to those dollars, it

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1 had to be a significant portion of what we were paying in total 2 during that time period. 3 Q Weve talked, then, about the approach with the Cooney, Now I want to talk just a little bit

4 Lanier and Simmons folks. 5 about the other cases. 6 A 7 Q Mm-mm.

How did your thought process with respect to the

8 resolution of those cases differ from what weve talked about 9 for the Cooney, Lanier and Simmons firms? 10 A Mm-mm. Well, as I said, in the other jurisdictions, you

11 know, we would, again, focused -- in my case, I was focusing on 12 the total cost of resolving the cases. So I would look at the

13 cases and wed go through all the traditional considerations 14 of, you know, whats the profile of the claimant. Again, is

15 this a claimant that presents him or herself credibly, as 16 someone who could have conceivably used the Bondex product as 17 they allege in the complaint, or is this a claimant who has 18 many other sources of industrial, or sustained occupational 19 exposure; that would play into it. 20 be in. The jurisdiction we might

The cost of what its going to take to work the case up So all of those

21 through the various phases heading to trial.

22 -- all of those factors would go into the decision. 23 Q Now, with respect to the Cooney, Lanier, Simmons

24 settlement approach, did you end up paying more cases, or more 25 people than you did in the individual approach in terms of the

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Tompkins - Direct/Jackson 1 race of people being paid? 2 A Absolutely.

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I mean, that was one of the consequences of

3 entering into some of these, you know, sort of aggregate 4 settlements where, you know, the rate of dismissal is obviously 5 low because youre paying something on every one, even though, 6 you know, you have no input into how the dollars were allocated 7 to any individual plaintiff. So, yes, we may well had paid,

8 you know, more claims and paid on claims that werent 9 necessarily reflective of Bondexs true liability. But when

10 youre sitting there looking at it from whats the most 11 effective means from a total cost of resolution basis, it 12 simply made, at least in my judgment at the time, made good 13 economic sense, given the cases particularly in Madison County, 14 to resolve them that way. 15 Q Now, on the -- taking the Cooney, Lanier, Simmons

16 settlements and putting them to one side, back on the sort of 17 what Ill call the rest. 18 A 19 Q 20 A 21 Q 22 A Mm-mm. Did you ever take any of those cases to trial? We took a number of cases to trial. What happened? We had different results. My recollection was we took

23 cases to trial roughly between the 2004, maybe up through 2010 24 time period. 25 to trial. I think we took about 30, give or take, 30 cases

You know, we had defense verdicts in, I think, a

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Tompkins - Cross/Sheppard 1 little over half of those. 2 numbers. Again, I dont recall exact

102

In some instances, you know, even if there was a

3 verdict against Bondex, there may have been an offset from 4 another defendant in the case where there were setoffs, or 5 credits that may have lowered, ultimately, what Bondex paid, 6 but I think, overall, fairly successful results. 7 MR. JACKSON: Thank you, Mr. Tompkins. I have no

8 further questions. 9 THE COURT: Mr. Sheppard, let me inquire, have you

10 folks made some special arrangements for your lunch hour that I 11 should know about? 12 13 14 MR. SHEPPARD: THE COURT: We have not, Your Honor.

Okay. I do have a fair amount, given the

MR. SHEPPARD:

15 broad range that was covered here. 16 THE COURT: Well, why dont we start. Well take a Is that okay?

17 recess at 12:30, from 12:30 to 1:30, all right. 18 19 20 21 BY MR. SHEPPARD: 22 Q 23 A 24 Q Good afternoon, Mr. Tompkins. Good morning, Mr. Sheppard. Oh, thats right, its still morning. MR. SHEPPARD: THE COURT:

Thats fine, Your Honor.

All right. CROSS EXAMINATION

You testified on

25 direct examination, Mr. Tompkins, that you were the general

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Tompkins - Cross/Sheppard 1 counsel of the company. 2 A Yes.

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Can you tell us what the company is?

It says general counsel when I started for RPM,

3 Inc., as well as acting as general counsel in providing legal 4 services for all of RPM, Inc.s subsidiaries at the time. 5 had -- so thats what I meant by the company in shorthand. 6 Q 7 A 8 Q 9 A 10 Q Okay. And that includes Bondex International, correct? We

Correct. Bondex didnt have its own general counsel, is that right? No, it didnt. So when you say you managed the litigation, you were

11 managing the litigation both for Bondex, RPM, Inc., and any of 12 the other subsidiaries of RPM, Inc. who may have had asbestos 13 liabilities, is that correct? 14 A Thats generally correct. We had some subsidiaries that

15 were larger and had their on in-house legal staff, but that 16 statement is accurate. 17 Q And they have the same national coordinating counsel, I

18 assume? 19 A 20 Q 21 A 22 Q They being? The subsidiaries of RPM, Inc. for asbestos cases? For asbestos, yes. At the time, yes.

And no distinction between Bondex and RPM, Inc., is that

23 right? 24 A No distinction in the sense that they had the same

25 coordinating counsel, thats correct.

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Tompkins - Cross/Sheppard 1 Q 2 A In 1999, Bondex ceased to operate, correct? Yes. It was not -- it was an inactive corporation. It

104

3 didnt have an operating business at the time. 4 Q In fact, all of its assets were transferred to another

5 subsidiary of RPM, Inc., isnt that right? 6 A In 1999, certain assets were sold to DAP, and certain

7 assets were sold to Zinsser, both of which were consumer 8 DIY-type businesses within the RPM portfolio. 9 Q 10 A 11 Q 12 A And they were subsidiaries of RPM, Inc., correct? Zinsser and DAP were, yes, thats correct. So Bondex had no assets as of 1999, is that right? As of 1999 it was no longer an operating company. It had

13 sold its trade names, trademarks, and some other assets to 14 those two subsidiaries. 15 Q 16 A 17 Q 18 A 19 Q So it had no assets, Mr. Tompkins? At that time, thats correct. Okay. As of 1999, did it ever get any assets after 1999?

Not that I recall, no. So when Bondex International settled a case, where did the

20 money come from? 21 A When Bondex settled a case while we had third-party

22 insurance, as I mentioned, 90 percent of the cost were covered 23 by those third-party insurers. 24 Q 25 A Where did the 10 percent come from? After 1999, all of the cash of the RPM companies is pulled

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Tompkins - Cross/Sheppard 1 together.

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So some of those costs were funded, ultimately, by

2 RPM International. 3 Q Okay. And that continued right up until the filing of the

4 bankruptcy, is that correct? 5 A 6 Q Thats correct. So from 2002 to 2010, it was International who was

7 ultimately paying for Bondexs asbestos liability, is that 8 correct? 9 A Like most large corporations, we have a centralized cash

10 pooling system, so all the cash of all the subsidiaries, you 11 know, flows up and is, you know, collected in a cash pooling 12 system. 13 Q 14 A 15 Q 16 A 17 Mr. Tompkins, Bondex didnt have any assets, did it? Correct. So the money came from International, didnt it? Correct. THE COURT: Excuse me. It came from International Where did it come

18 from 2002 when International was formed. 19 from between 1999 and 2002, please? 20 21 MR. SHEPPARD: THE WITNESS:

That was my next question. At that time, it would have been RPM,

22 Inc. is the ultimate parent company at the time. 23 24 Q THE COURT: Okay. Thank you.

So from 1999 to 2002, all the money came from RPM, Inc.,

25 is that correct?

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Tompkins - Cross/Sheppard 1 A 2 Q No. We had insurance paying at that time. Insurance is paying at that time. But they were

106

Okay.

3 only paying a portion, right? 4 A 5 Q Ninety percent. Right. The 10 percent was coming from RPM, Inc., is that

6 correct? 7 A 8 Q 9 A 10 Q From what time period are we saying? 1999 to 2002. Right. Okay. Thank you, sir. Now, you testified on direct What did

11 examination, and you used the term true liability. 12 you mean by true liability? 13 A

Well, in that context, if you take the group settlements

14 that weve -- that I had gone through on direct and looked at 15 how the dollars in those settlements were allocated to 16 individual plaintiffs, you know, we had no input as to whether, 17 you know, Mr. Smith versus Mr. Jones got X or Y. So to say

18 that any one of those dollar amounts that were allocated to one 19 of those individual plaintiffs was indicative to what Bondexs 20 liability was in that particular case which had no discovery. 21 Thats what I mean by -- thats a negotiated settlement and the 22 plaintiffs are allocating the dollars. I dont think thats a

23 proxy for what Bondexs liability may or may not have been had 24 the case been worked all the way through trial, for example. 25 Q But Bondex, RPM, Inc. and then, ultimately, RPM

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Tompkins - Cross/Sheppard

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1 International chose to pay that sum, didnt they, Mr. Tompkins? 2 A As I said, yes, as an economic means of resolving the

3 cases, but not necessarily is indicative of what the liability 4 was. 5 Q And they made the decision to settle, is that correct, They made

6 RPM, Inc., RPM International, and Bondex, correct? 7 the decision, right? 8 A 9 Q Correct. Okay.

And on the other side of the fence, you have the

10 plaintiff and his counsel, they also made a decision to settle, 11 isnt that right? 12 A 13 Q 14 A 15 Q Correct. And you negotiated a sum, isnt that fair to say? Yes. And even in these group settlements that Mr. Jackson

16 showed you just a few minutes ago, you negotiated a gross sum, 17 isnt that right? 18 A 19 Q Yes. An aggregate amount for a group of cases.

And you testified earlier, and I think you may have been You testified earlier that you didnt have any input

20 mistaken.

21 into the number of plaintiffs that were included in a 22 particular group, is that correct? 23 A No. We -- as part of the negotiation, my point was we

24 didnt have input in terms of how the aggregate dollars were 25 allocated to any one of those 270, or whatever the number, you

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Tompkins - Cross/Sheppard 1 know, was. 2 Q

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But you certainly had input into the number of plaintiffs

3 that were involved, isnt that right? 4 A 5 Q Yes. And you certainly had input into the amount that

6 ultimately was the aggregate sum, isnt that correct? 7 A 8 Q Yes. Correct.

And on the other side, the plaintiff had some input into

9 that discussion, isnt that right? 10 A 11 Q 12 true? 13 A 14 Q Correct. Okay. And I assume, Mr. Tompkins, since it was your job Correct. And you reached an arms-length transaction, isnt that

15 to hire a national coordinating counsel, that you hired the 16 best lawyers you could find, isnt that right? 17 A 18 Q 19 A 20 Q Yes. And that you were pretty pleased with their efforts? In what context? I was always --

Do you believe that your national coordinating counsel

21 generally got the best deal that Bondex could get? 22 A 23 Q Yes. I was very comfortable with their capabilities, yes.

So if they came to you and recommended a settlement, you

24 were pretty sure that that was the best deal you were going to 25 get in that particular case, is that right?

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Tompkins - Cross/Sheppard 1 A 2 Q Yes. Okay.

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And then based upon all the factors you testified

3 about on direct, you made a decision to settle, isnt that 4 correct? 5 A 6 Q Yes. Okay. Let me -- now, there was a fair amount of testimony

7 regarding the change in the litigation posture for Bondex from 8 1980 up until 2010. 9 A 10 Q Mm-mm. And I want to try to break that down a little bit, if I You testified that it was in the late 90s

11 can, Mr. Tompkins.

12 when things began to change for Bondex in terms of its 13 litigation, is that right? 14 A I think I indicated the early 2000 period. I got more

15 involved in the litigation in the late 90s. 16 Q Okay. It wasnt that Bondex didnt have significant cases

17 in the 1990s, did it? 18 A I dont recall exactly what we had, but it was, I think, a

19 relatively low number of cases relative to the overall asbestos 20 litigation, and it dramatically increased in that early 2000 21 time period. 22 Q And I think you testified that of those cases, though, you

23 thought that they were the kind of cases that posed a 24 substantial risk to the company, is that correct? 25 A Not all of them, but certainly some did. Some presented,

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Tompkins - Cross/Sheppard 1 as I said, a plaintiff that, you know, would appear to have 2 been credibly exposed to the Bondex product in kind of an 3 in-home use of the product.

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And we didnt have the high volume

4 of other multiple defendant, multiple other sources of exposure 5 type cases. So the type of case and the sheer volume changed

6 considerably. 7 Q Okay. So risk was an important factor in that time

8 period, is that right? 9 A I think risk is always a factor when youre the general

10 counsel of a company. 11 Q Okay. Risk of an adverse verdict in asbestos case was

12 always a factor, is that your testimony? 13 A 14 Q Its one of the factors, certainly. Okay. Its one of the factors. And I think Mr. Jackson

15 asked you and you ticked off a few others, is that right? 16 A 17 Q Yes, there were a number of other factors, sure. And those are all factors that you and your general

18 counsel took into effect in making the decision to settle the 19 case, isnt that right? 20 21 counsel? 22 23 Thank you. 24 A Thats correct. Again, focusing on the total cost of the MR. SHEPPARD: Yes, Im sorry. Coordinating counsel. UNIDENTIFIED SPEAKER: Did you mean coordinating

25 litigation and trying to manage the total dollars that the

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Tompkins - Cross/Sheppard 1 company was spending on the litigation. 2 Q And only one of those factors was defense cost, right?

111

3 There were five or six others, correct? 4 A Defense cost was certainly one of the factors, if not one

5 of the most significant factors involved. 6 Q 7 A But not as significant as trial risk, right? No. I think it was -- actually, I think it was as much,

8 or more significant. 9 Q Now, in the -- you testified that this increase in claims

10 was as a result of the bankruptcy wave? 11 A 12 Q 13 A 14 Q 15 A That was certainly one of the factors. It was one of the factors? Correct. There were other factors? As I mentioned, the number of bankruptcy filings and what

16 appeared to me to be a significant loss of actively 17 contributing dollars in the tort system at the time. So,

18 again, Bondex was facing more claims on what I felt to be a 19 disproportionate share having to pick up often in a joint and 20 several jurisdiction the share of other non currently paying 21 defendants. 22 Q Isnt it a fact, sir, that a number of firms, or a small

23 number of firms had turned its attention to Bondex in the late 24 90s and began making very significant cases against the 25 company?

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Tompkins - Cross/Sheppard 1 A There was certainly what seemed to be a focus on joint

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2 compounds.

What was driving that, the joint compounds were a

3 focus, as well as, again, the impact of the -- a lot of the, 4 you know, major other defendants that filed bankruptcy. 5 6 Q 7 MR. SHEPPARD: Can we have ACC-113, please.

If you take a look at ACC-113. MR. GORDON: Excuse me, Your Honor. We need to get

8 our system flipped off the ELMO onto that so we can see what 9 hes talking about because I cant see the document unless I 10 turn around. 11 12 too. 13 MR. GORDON: Were both hooked to the ELMO, were not THE COURT: Oh, we need a separate screen for you,

14 hooked to the -15 THE COURT: I see. Well have to take care of that

16 at the lunch recess. 17 MR. SHEPPARD: Your Honor, I can rip mine out and put

18 it on the ELMO. 19 THE COURT: All right. Why dont you do that. That

20 might be helpful. 21 Q 22 A Mr. Tompkins, if you take a look at ACC/FCR Exhibit 113. Mr. Sheppard, could you shift it down a little bit. I

23 cant see the whole document. 24 Q There you go. Exhibit 113 appears to be a memo dated

25 September 7th, 2001 regarding RPM asbestos litigation from Dale

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Tompkins - Cross/Sheppard 1 -- or to Dale C. LaPorte and Edward W. Moore from Michael 2 Brittain. 3 A 4 Q 5 A 6 Q 7 A 8 firm. 9 Q 10 A And was he involved in the asbestos defense of Bondex? Mr. Brittain was really more involved the insurance Mm-mm. See that? Yes. And who is Michael Brittain? Michael Brittain is a partner at the Calfee Halter law

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11 coverage issues throughout the litigation. 12 Q And it says that Kelly Tompkins asked me to provide both

13 of you with copies of the attached e-mail messages, do you see 14 that? 15 A 16 Q Yes. Two of the messages relate to $55 million verdict in Texas

17 against Kelly Paint Moore arising out of its asbestos 18 containing drywall compound products, do you see that? 19 A 20 Q 21 A Yes. Did you instruct Mr. Brittain to send those e-mails? Well, Mr. Sheppard, the e-mails arent attached, I dont

22 even know what they were, but thats what this document 23 indicates. 24 Q I cant recall anything beyond whats said here.

Why dont you take a look at the bottom section that is

25 highlighted there.

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Tompkins - Cross/Sheppard 1 A 2 Q Sure. Mm-mm. Okay.

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So is it fair to say there was concern at Bondex and RPM,

3 Inc. that these high value verdicts and settlements were likely 4 to increase the filings against Bondex? 5 A Well, anytime theres a verdict of that -- a $55 million

6 verdict is going to get anybodys attention, sure. 7 Q 8 A 9 Q 10 A 11 Q 12 A Is it going to increase the claims, Mr. Tompkins? It could. It --

Did it, sir? It might have been one of the factors, certainly. Okay. It had nothing to do with the bankruptcy, right?

Kelly-Moore may have taken that verdict because there I

13 werent any other joint compound defendants left to hit. 14 dont know. 15 Q But this isnt the only factor.

It had nothing to do with the bankruptcy wave as a reason

16 for the filings against Bondex, isnt that true? 17 A I dont agree with that. I dont quite understand your

18 question, Mr. Sheppard, either. 19 Q Now, you also testified, I believe, that there were some

20 other factors that led to these increasing claims. 21 Advertising. 22 this time? 23 A I think asbestos plaintiffs firms were advertising And we were in the litigation since Didnt plaintiffs firms begin to advertise around

24 throughout the litigation.

25 1980, so it wasnt like we were a newly discovered defendant.

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Tompkins - Cross/Sheppard 1 Q And you testified, sir, that Bondex was in the --

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2 primarily in the DIY market, correct? 3 A 4 Q Correct. And I believe you testified on direct that those

5 homeowners and small contractors were, generally, not the type 6 of asbestos plaintiffs that you had seen in the past, isnt 7 that right? 8 A No. In the past, prior to the early 2000s period, you

9 know, to the extent that we had cases, you would see an in-home 10 use exposure alleged. In the early 2000 and going forward, we

11 started to see Bondex named again in more of the general, you 12 know, occupational exposure, other industrial settings, 13 commercial settings. The type of exposures and types of usages

14 of the product that didnt seem credible or consistent with the 15 past. 16 Q Okay. And at that time I think you testified that there

17 was a shift in your litigation strategy, again, to be more 18 aggressive in defending those cases, is that right? 19 A 20 Q 21 A 22 Q Thats correct. In terms of product identification in particular, right? Yes. You insisted on product identification as a basis for

23 settlement, did you not? 24 A Well, we didnt insist on product identification in terms

25 of the settlements that we went through, for example, with the

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Tompkins - Cross/Sheppard 1 three firms that had bundled settlements. 2 identification in those. 3 Q

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There was no product

You didnt require product identification with regard to

4 your group settlement, sir? 5 A I think in one of the settlement arrangements, there was

6 either -- I dont know if there was an affidavit, or just a 7 statement that, you know, that claimant, you know, would allege 8 that they were exposed to a Bondex product, but we did no 9 discovery on that, there was no depositions taken, there was no 10 attempt to challenge that product ID, or the credibility of 11 that product ID. 12 Q Isnt it true, Mr. Tompkins, that your group settlement

13 agreements required the plaintiffs to produce product 14 identification evidence sufficient to Bondex before they would 15 be paid? 16 A 17 not. I dont recall all of those, if that was the criteria or It may wall have been in one or two of them, but, again,

18 just because the plaintiff is saying they were exposed and we 19 did no discovery and no attempt to challenge that. 20 21 please. 22 Q 23 A Is that a settlement agreement for Bondex, sir? Yes. It appears to be a settlement agreement between MR. SHEPPARD: Well, can we pull up, then ACC-165,

24 Simmons Cooper and Bondex in 2009. 25 MR. SHEPPARD: Im sorry, Your Honor. Im trying to

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Tompkins - Cross/Sheppard 1 switch between things here. 2 Q Got it. Okay.

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Now, this is one of the group settlements that you were

3 talking about before, isnt that correct? 4 A 5 Q Thats correct. And if you go down to Paragraph Number 3 under payment

6 criteria, do you see that? 7 A 8 Q Yes. So you required an affidavit or deposition testimony

9 illustrating that te plaintiff was exposed to 10 asbestos-containing products for which Bondex, RPM, or Reardon 11 has responsibility? 12 A 13 Q Mm-mm. The parties agree that the exposure to asbestos-containing

14 products identified in its interrogatories provided October 15 31st, 1999 to the Simmons firms would qualify for payment, do 16 you see that? 17 A 18 Q Yes. So you required product identification even in the group

19 settlements, didnt you? 20 A This particular group settlement we did, but, again,

21 thats -- my recollection is that we would typically get a very 22 short form affidavit, virtually every affidavit looked the 23 same, just simply, you know, with a statement. But, again, no

24 -- that affidavit, or that affiant was not cross examined, or 25 deposed, or otherwise challenged. We just took that a face

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Tompkins - Cross/Sheppard 1 value whether it was credible or not. 2 Q And if you go down a little bit further, underneath the

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3 highlighting for payment terms, it says other terms. 4 A Mm-mm. Can you scroll it down, Mr. Sheppard, I cant move

5 the document, you can. 6 Q 7 A 8 Q Im sorry. Thats all right. It actually provides for an alternative dispute resolution

9 if theres a dispute regarding the sufficiency of the product 10 ID evidence, isnt that true? 11 A Give me a minute to read it. Youve got one section

12 highlighted and I think youre reading from another section. 13 Q 14 Yes. Below that, other terms. THE COURT: Mr. Sheppard, while hes reading, I just

15 want to make sure that I have a complete list of your exhibits. 16 My exhibit list goes up through Page 20 and ends with ACC-137 17 and you just stated 165, so I dont know whether I have a 18 complete list. 19 20 21 MR. SHEPPARD: THE COURT: Your Honor, Im sorry, its E-165. Okay. Im sorry.

Oh, E.

MR. SHEPPARD:

Your Honor, for clarification, E is

22 for estimation, which are the documents that we will be using, 23 M are the medical documents that Mr. Finch will be using. 24 25 THE COURT: Okay. Thank you.

MR. SHEPPARD:

Thats why we broken them up that way.

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Tompkins - Cross/Sheppard 1 2 Q 3 A 4 Q THE COURT: All right. Thank you.

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Have you had a chance to read that, Mr. Tompkins? Yes. So you would agree with me that it provides for a dispute

5 resolution mechanism if there is some dispute over the 6 sufficiency of a document, correct? 7 A 8 Q In this particular settlement, yes, if they see that. And you didnt have that kind of dispute resolution in all

9 of your group settlements, sir? 10 A I dont recall. There was no reference to that in the

11 earlier Simmons Cooper documentation that I testified to 12 previously. 13 Q Now, Mr. Jackson asked you some questions about joint and

14 several jurisdictions, do you recall those? 15 A 16 Q Yes, generally. Yup.

Now, Bondex settled a number of cases in those

17 jurisdictions, correct? 18 A 19 Q Yes, thats correct. And, in fact, I assume as the general counsel you were

20 responsible for the overall -- or the ultimate approval of any 21 release and settlement agreement, isnt that correct? 22 A As I testified earlier, yes, I had the ultimate authority

23 over settlements. 24 Q And so you would have been the person who would have made

25 sure that the language that was in there to protect RPM

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Tompkins - Cross/Sheppard 1 International, RPM, Inc. and Bondex was there, correct? 2 A I would expect our local counsel to prepare the

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3 appropriate form of release that would be effective in the 4 jurisdiction where the case was being released, that the scope 5 of the release was appropriate in terms of the parties covered 6 by the release. And typically in releases, you know, they have

7 a provision that theres no -- the release is not an admission 8 of liability to the parties, you know, that whatever language 9 would be appropriate in that jurisdiction, Id expect our 10 counsel to prepare. 11 Q Okay. So in terms of the scope of the release, the

12 release never released any other defendants other than Bondex, 13 RPM, Inc., or RPM International, correct? 14 A Those were the three -- if those were the three entities

15 named in the complaint, that would be the scope of the release. 16 Q Though, I believe you testified earlier on direct that you

17 thought that Bondex was in a position of having to pay someone 18 elses several share, isnt that correct? 19 A Someone elses several share in the sense of other non

20 RPM-related companies that were either unable to pay, they were 21 insolvent, or not currently paying, we would often end up 22 having to pick up that share. 23 Q Okay. Thats what I was referring to.

Your release, sir, didnt release any other

24 defendants, other than Bondex, RPM International, and RPM, 25 Inc., isnt that true?

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Tompkins - Cross/Sheppard 1 A Thats correct. I wouldnt expect it to release any

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2 other. 3 MR. GORDON: Your Honor, can I ask what the exhibit

4 number is of whats on the ELMO now? 5 6 7 8 9 Q 10 A MR. SHEPPARD: MR. GORDON: This is 171.

E something, 171, though? E-171. Thank you.

MR. SHEPPARD: MR. GORDON:

Okay.

E-171, Mr. Tompkins, is a settlement agreement from 2001. Okay. I cant see the top of it, but -- can you shrink

11 the font a little bit and I might be able to see the whole 12 thing. 13 Q 14 A 15 Q Okay.

Is that better? Yup. So you agree with me, sir, its a settlement agreement

16 from 2001? 17 18 A MR. GORDON: Is the date on the second page? I dont see a date

I dont mean to nitpick, Mr. Sheppard.

19 as Im looking at this page, but there may be a second page. 20 Q 21 A 22 Q I apologize. Thats all right. Yeah, June 11, 2001.

You dont have any particular recollection of the

23 Snodgrass case, do you? 24 A 25 Q No, I dont. And as we just discussed, if you look at the first

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Tompkins - Cross/Sheppard 1 highlighting, the only entities that are being released here 2 are Bondex International, and in this case RPM, Inc. because 3 RPM International didnt exist yet, right? 4 A 5 Q Thats correct. Okay.

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And the plaintiff is agreeing here never to make a

6 claim, or a demand, or to prosecute any claim against Bondex 7 International or RPM, Inc., isnt that right? 8 A 9 Q Yes, thats correct. Then if you go to the next page, it specifically says that

10 in further consideration of the above payment, that neither I, 11 nor anyone on my behalf will cause to be released any other 12 persons, any news media, any publication of any type, or any 13 details of this settlement agreement. 14 Mr. Tompkins? 15 A Again, I dont have particularly familiarity with this My expectation would be our Why was that important,

16 release or this particular case.

17 local counsel would prepare an appropriate form of release that 18 would release the RPM-related companies that were the subject 19 of that particular litigation. 20 Q Im specifically talking about the confidentiality clause Why was a confidentiality clause

21 that I just read, sir.

22 included in this document? 23 A Confidentiality was typically a provision that we would That was

24 expect in a settlement and a release agreement. 25 pretty standard practice.

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Tompkins - Cross/Sheppard 1 Q

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Because you didnt want the plaintiffs talking about what

2 they were receiving from Bondex, correct? 3 A 4 Q Thats correct. Because if they did, you would have likely gotten more

5 claims, isnt that right? 6 A 7 Q Thats your opinion. Well, no, sir. I dont know. I simply -I didnt put it in

Its not my opinion.

8 the release, you did. 9 A

You tell me why its there.

We had an expectation that a settlement would be

10 confidential between the settling claimant and the RPM 11 companies, period. 12 Q 13 A It wasnt --

So it was just in there for the heck of it? Thats not what I testified to, Mr. Sheppard. Its very

14 customary to have a confidentiality provision in a settlement 15 agreement in any context of litigation. 16 particularly unusual. 17 Q I dont think its unusual for any of your agreements My question to you I dont think this is

18 because theyre in every single one, sir. 19 is why is it in there? 20 A

Because we had an expectation that the settlement between

21 the claimant and the RPM-related companies that were part of 22 the agreement would be kept confidential. 23 Q And it was important to keep it confidential so people

24 didnt know what Bondex was paying on its claims, right? 25 A Yes, sure. Thats one of the considerations.

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Tompkins - Cross/Sheppard 1 Q Okay. Then if you go to the next page, the plaintiff

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2 there is specifically reserving the right to go after, or to 3 file any claim, or prosecute actions, or causes of action 4 against other persons other than Bondex. 5 A 6 Q Yes. Mm-mm. When Bondex settled a case, sir, did Do you see that?

When -- strike that.

7 Bondex ever go back to the plaintiff and ask for some kind of 8 recoupment based upon the fact that it wasnt reflective of 9 their true liability? 10 A 11 Q 12 A 13 Q 14 15 Sheppard. 16 17 Q Im not sure I understand your question. You testified earlier, sir -Right. -- that you believed that Bondex -THE COURT: Sorry. MR. SHEPPARD: Okay. Im sorry, Your Honor. You need to use the microphone, Mr.

-- that Bondex was paying more than its share because of

18 these joint and several jurisdictions, isnt that right? 19 A 20 Q In a number of instances, yes, thats my opinion. Okay. And my question to you, sir, is when you settled

21 those cases, did you ever go back to the plaintiff and ask for 22 recoupment because they had gotten more money from someone 23 else? 24 A What we would -- no, we didnt do that. What we would

25 typically --

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Tompkins - Cross/Sheppard 1 Q 2 A 3 Q 4 A Did your -- Im sorry. Can I finish my answer, please? Certainly.

125

What we would typically do, is if there was an opportunity

5 to get a setoff, or credits, you know, from another defendant, 6 particularly if we were taking a case to trial, but not to go 7 back to the plaintiff and get any recoupment, or whatever your 8 verbiage was, no. 9 Q Okay. And you could have gone to trial, right, and gotten

10 a setoff or recoupment, isnt that correct? 11 A Youre speaking kind of very generally and

12 hypothetically -13 Q 14 A Yes, generally. -- depending on the jurisdiction? Yes, there were

15 setoffs, you know, depending on the jurisdiction and how it 16 worked, and who the defendants were. Whether they were -- you

17 know, in Texas there was a point in time, to my recollection, 18 where an insolvent defendant couldnt be allocated share in a 19 joint and several. 20 Q So it depended on the jurisdiction.

And how many cases did Bondex settle while you were the

21 general counsel? 22 A I couldnt tell you as I sit here. Quite a number, Mr.

23 Sheppard. 24 Q 25 A Ten thousand? Probably all-in, that or more, but I dont have a specific

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Tompkins - Cross/Sheppard 1 number. 2 Q 3 A Im sure you probably do.

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And how many cases did they take to trial? I testified earlier, my recollection is about 30, maybe 32

4 cases to trial. 5 Q And in only one of those cases did you receive sufficient

6 setoff to completely wipe out Bondexs liability, isnt that 7 correct? 8 A To completely -- well, I dont recall the specifics of all Where we had the opportunity to get setoffs, we But

9 those cases.

10 did, or, you know, credits from other defendants, we did.

11 I dont recall the particular case that you may be alluding to. 12 MR. SHEPPARD: Your Honor, Im kind of at a natural

13 stopping point. 14 15 1:30. 16 17 18 19 20 21 22 Sheppard. 23 Q Mr. Tompkins, when we left off we were talking about And Im going to I will THE COURT: (Recess) Good afternoon. Please be seated. THE COURT: All right. Well take lunch recess until

MR. SHEPPARD: THE COURT:

Good afternoon, Your Honor.

Are you ready, Mr. Tompkins? Yes. When youre ready, Mr.

THE WITNESS: THE COURT:

All right.

24 E-171, which Ive put back up on the screen.

25 ask if we can turn to Page 8 of that document, please.

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Tompkins - Cross/Sheppard 1 represent to you, sir, that this was a document that was 2 attached to the settlement agreement we were talking about 3 before lunch, a motion for finding of good faith settlement.

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4 Is that something that was generally filed in Madison County? 5 A I dont recall specifically, Mr. Sheppard, but I see our

6 local defense counsel Burroughs Hepler on there, so presumably 7 that was part of a typical procedural practice. 8 Q And if you look at Paragraph 2 of this motion for finding

9 of good faith settlement, which appears to me to be what youre 10 asking the court to approve the settlement, is that right? 11 A Thats what -- yeah, its a motion to approve the

12 settlement, presumably, yes. 13 Q And in Paragraph 2 it says, this settlement is only

14 between the plaintiff and Bondex International, Inc., and it 15 does not affect any other defendants in this cause of action. 16 Do you see that? 17 A 18 Q Yes, I do. And wasnt that included in all motions for good faith

19 settlement filed in Madison County? 20 A I dont know, Mr. Sheppard. Again, wed rely on local

21 counsel to make those sort of determinations. 22 Q Now, when we were talking about the actual release Do you

23 agreement, the Snodgrass case was settled for 145,000. 24 recall that? 25 A Yes. I recall reading it, yes.

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Tompkins - Cross/Sheppard 1 Q

128

And if you look at Paragraph 4 of this motion for finding

2 of good faith settlement, it says that considering the totality 3 of the circumstances and the questionable liability and the 4 questionable damages in this case, and the adequacy of the 5 amount the defendant believes that said settlement is in good 6 faith and should be approved by the court. 7 A 8 Q Yes, I do. And that document was filed by Bondex International and Do you see that?

9 RPM, Inc.s lawyers, isnt that correct? 10 A 11 Q Yes. Thank you. Now, Mr. Tompkins, you testified on direct

12 regarding the corporate history, remember that? 13 A 14 Q Yes. Okay. Mm-mm. And you testified that in 1966 what was then

15 Republic Powdered Metals, which became RPM, Inc., acquired the 16 Reardon Company, correct? 17 A 18 Q Yes. Correct.

As part of your review for that corporate history chart

19 that you prepared for counsel, did you review the 1966 annual 20 statement that was filed by Republic Powdered Metals? 21 A First of all, Mr. Sheppard, I didnt prepare this But I reviewed different documents I dont recall that particular

22 document, our counsel did.

23 over the course of litigation.

24 document that youre referring to. 25 MR. SHEPPARD: Can we pull up E-426, please.

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Tompkins - Cross/Sheppard 1 2 3 4 5 exhibit. THE COURT: Im sorry, 426? E-426, Your Honor.

129

MR. SHEPPARD: THE COURT: MR. GORDON:

All right. Your Honor, this is like a multi-page

I wonder if Mr. Sheppard has a full copy that he can

6 give to the witness. 7 8 COURT CLERK: MR. GORDON: Can you turn on your microphone? Oh, sorry. I wonder if Mr. Sheppard has

9 a full copy of the exhibit that he can give to the witness. 10 MR. SHEPPARD: Theres actually one right behind him

11 in a binder. 12 MR. GORDON: Oh, okay. Ill go find it. Im happy

13 to look for it, if you just tell me the number again. 14 15 help. 16 UNIDENTIFIED SPEAKER: 426. MR. SHEPPARD: It only goes up to E-425. Well, well I could probably use some

17 take our time as we scroll through it. 18 and pull it up, please. 19 20 21 THE COURT:

Grab that first page Can you see --

Lets try the ELMO.

Not yet. -- E-426? I see a Bondex 1966 annual report. I

MR. SHEPPARD: THE WITNESS:

22 cant see the exhibit number, but Ill take your word for it, 23 Mr. Sheppard. 24 Q Now, prior to the acquisition of Reardon, Republic

25 Powdered Metals was not in the DIY market for joint compound,

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Tompkins - Cross/Sheppard 1 is that right? 2 3 Q THE COURT:

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Im sorry, would you repeat that, please?

Prior to the acquisition of Reardon, Republic Powdered

4 Metals at the time was not in the joint compound business, is 5 that right? 6 A 7 Q Thats my recollection, Mr. Sheppard, yes. Okay. And when it acquired Reardon, it was for an entree

8 into the consumer business, right, a new field for other RPM 9 products, is that correct? 10 A I dont know. This is the first time Ive seen this

11 particular document. 12 Q Do you have any reason to believe that its not the 1966

13 annual report of Bondex? 14 A No, not at all. I just indicated I hadnt seen it before,

15 or looked at it. 16 Q And if we flip to Page 5 of our document and you look at

17 the highlighted section there, in the sales and marketing 18 section of the annual report, it says from a marketing and 19 sales standpoint, our acquisition of the Reardon Company forms 20 RPM into an organization with well established outlets and 21 accounts in both the industrial and retail markets. 22 combination increases our overall distribution and 23 representation, and creates increased exposure for both lines. 24 Many RPM and Reardon products have sales potential in both the 25 industrial and retail markets, and the interchanging of such The

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Tompkins - Cross/Sheppard

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1 products between lines increases our ability to offer complete 2 maintenance and protection items to all markets. 3 that correctly? 4 A 5 Q Yes, you did. Now, if we go to the next page, Page 6 of the document, we Are you with me, Mr. Did I read

6 look at that highlighted section. 7 Tompkins? 8 A 9 Q Yes, I am.

Here the report talks about the fact that theyre pleased

10 that they acquired the Reardon Company in St. Louis, Missouri. 11 And they say that Reardon was the manufacturer of Bondex, the 12 worlds leading cement-based waterproofing paint. 13 that? 14 A 15 Q Yes, I do. Reardon is a major factor in the home and retail markets Do you see

16 with a complete line of maintenance and protective products, 17 and its a name well known to the industry and homeowners for 18 high quality and performance. 19 A 20 Q Yes, I do. Mm-mm. Do you see that?

In fact, even as of 1996 when you joined the company,

21 Bondex was a national name, right? 22 A Bondex was a well known name, yes, but it was a small

23 player in terms of just revenues and size. 24 Q It had such strong product identification that in 1972

25 when you spun off the Reardon subsidiary, or the Reardon

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Tompkins - Cross/Sheppard 1 division, you called it Bondex International, right? 2 A I dont know -- I wasnt there in 1972.

132

I dont know what

3 the rationale was for it at the time, but Bondex was a well 4 known trade name, certainly, in that market at the time. 5 Q Now, Bondex, you testified, was sold primarily in hardware

6 stores and lumber yards, is that correct? 7 A I think I indicated hardware stores, not lumber yards, but

8 hardware stores. 9 Q 10 A 11 Q 12 A Would you disagree that they were sold in lumber yards? I dont know that for certain, Mr. Sheppard. Were they sold only in hardware stores? My recollection was that the product was principally

13 distributed through hardware stores, but. 14 Q Didnt Bondex have private label agreements with J.C.

15 Penny? 16 A Bondex had some private label agreements with several

17 companies, J.C. Penny, I believe, was one of them, yes. 18 Q 19 A 20 Q 21 A J.C. Penny is not a hardware store, is it? I dont know what they were at the time. Theyre not now.

How about Montgomery Ward, were they a hardware store? I dont know. Im not familiar with what Montgomery Ward

22 was at that time. 23 Q Did Montgomery Ward have a private label agreement with

24 Bondex? 25 A I dont know. It could have been one of the several that

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Tompkins - Cross/Sheppard 1 I mentioned.

133

Im familiar with J.C. Penny, but not Montgomery

2 Ward, necessarily. 3 Q Other than J.C. Penny and Montgomery Ward, can you

4 remember any others? 5 A 6 Q No. I just know they had some private label arrangements.

How about National Paint Distributors, did you ever hear

7 of them? 8 A 9 Q No. Not particularly, no.

Didnt Bondex have a private label agreement with National

10 Paint Distributors, or NPD? 11 A Mr. Sheppard, I dont recall. They may well have, but I

12 dont recall that. 13 Q And didnt Bondex have the -- strike that. Didnt Bondex

14 have the exclusive agreement to provide joint compound to the 15 General Services Administration of the United States of 16 America? 17 A I recall that Bondex was listed on a GSA contract for some I dont know if it was exclusive. I dont But I

18 period of time.

19 know how many years it covered or what kind of volume.

20 have a general recollection that at some point in time they had 21 a GSA listing, but. 22 Q 23 A 24 time. 25 Q Well, what time are we talking about, Mr. Tompkins, do you J.C. Penny is a national retailer, right? Well, they are now. I dont know what they were at that

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Tompkins - Cross/Sheppard 1 know? 2 A 3 Q 4 A 5 Q No, I dont know offhand.

134

How about Montgomery Ward, are they a national retailer? I think they were at the time. They dont exist any more.

And you already testified you dont know what National

6 Paint Distributors is, is that right? 7 A 8 Q I said I dont recall that name, no. Now, you testified that Bondex was made in a plant in St.

9 Louis, is that right? 10 A That was one -- that was the principal place of I think they also had a facility in Toms River,

11 manufacture. 12 New Jersey. 13 Q 14 A

They also had one in California, didnt they? I dont know if they had a manufacturing facility there, I recall St. Louis and Toms

15 or perhaps a distribution center. 16 River, New Jersey. 17 Q

If the documents that were produced in discovery in this

18 case stated that this product, this joint compound was 19 manufactured in California, would you disagree with that? 20 A If there are records to indicate that, no, I wouldnt

21 disagree because I dont have an independent recollection one 22 way or the other. 23 Q So we got St. Louis, California and New Jersey. East

24 coast, mid west, west coast, right? 25 A Assuming California -- yes. In that example --

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Tompkins - Cross/Sheppard 1 Q 2 A 3 Q And a national brand name, right? A well known name, yes.

135

So youre shipping out of all three factories, east coast,

4 west coast, mid west, right? 5 A I just said I dont -- I dont know personally whether we I

6 were shipping out of -- or manufacturing out of California. 7 dont know that. 8 Q Now, I believe Mr. Gordon said in his opening that the Do you

9 most Bondex products sold in a year was $6 million. 10 recall that? 11 A I recall Mr. Gordon this morning saying that.

I know the

12 revenues were very small of the company.

I dont recall what

13 they were in any given year, but it was -14 Q 15 A 16 Q 17 A So you dont know if it was 6 million? It was a very small amount of revenue, I know that. Could it have been more than 6 million? It could have. Maybe it was 8 or 10 million, but it was a

18 small amount. 19 Q 20 A 21 Q Do you know what year that was? No, I dont, offhand. Do you know, Mr. Tompkins, how much $6 million would be

22 worth today if it was in 1966 dollars? 23 A 24 Q No, I dont. Would you agree with me that it would be a lot more than

25 6 million?

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Tompkins - Cross/Sheppard 1 A On a purely mathematical basis applying some sort of an

136

2 inflation factor, yeah, 6 million is worth more today, but. 3 Q Now, one of the other jobs that you had as general counsel

4 was overseeing the filing of RPM, Inc. and later RPM 5 Internationals SEC filings, isnt that right? 6 A 7 Q Yes. As the chief financial officer, yes, thats correct.

And even as general counsel, you were involved in that,

8 isnt that true? 9 A 10 Q Yes. Correct.

Now, in 2006, RPM International hired a firm to estimate

11 its present and future asbestos liabilities, do you recall 12 that? 13 A I recall engaging a firm to attempt to put a value on the

14 claims that we had at that time for our GAP accounting purposes 15 for our financial statements. 16 Q For your financial statements that get filed with the

17 Securities and Exchange Commission, right? 18 A 19 Q Yes. Those very documents that the officers of RPM

20 International are required to sign and certify as accurate, 21 right? 22 A 23 Q Thats correct. You were involved in the hiring of Crawford & Winiarski,

24 isnt that right? 25 A Yes, I was.

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Tompkins - Cross/Sheppard 1 Q Okay.

137

So I assume that you wanted to get a company that

2 was going to give you the most accurate reflection of what the 3 companys present and future asbestos liabilities would be, 4 isnt that true? 5 A At that time, we were talking about valuing for purposes No, not Theres

6 of a period of time for accounting purposes.

7 necessarily -- not on a net present value basis.

8 different means by which one goes about valuation. 9 Q 10 A But you hired Crawford & Winiarski, right? Technically, I think outside counsel engaged Crawford &

11 Winiarski, but I was involved with it. 12 Q 13 A 14 15 this. 16 17 18 19 20 (Off the record discussion) THE COURT: Whats the exhibit number? This is Debtors-19(a), Your Honor. You approved it? Correct. MR. SHEPPARD: I dont have an exhibit number on

MR. SHEPPARD: THE COURT:

Debtors? Debtors-19(a). Its the RPM

MR. SHEPPARD:

21 International 10-K. 22 COURT CLERK: Youre going to have to stay near a

23 microphone. 24 MR. SHEPPARD: Im sorry. I have a copy I can -- may

25 I approach, Your Honor?

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Tompkins - Cross/Sheppard 1 2 Tompkins. 3 Q

138

Let me just find the right piece of paper here, Mr. Give me one second.

Im handed you, sir, what is the 2006 10-K that was filed

4 by -- or a copy of the 2006 10-K that was filed by RPM 5 International. 6 A Do you see that?

I have a cover page here on the 10-K and a number of

7 pages, but its not the complete 10-K filing. 8 Q I will represent to you, sir, that its only certain

9 pages. 10 A 11 12 Honor. 13 Q If you flip, Mr. Tompkins, to -- I dont know what page Its now up Do you Okay. Fair enough. MR. SHEPPARD: Give me one second. Sorry, Your

14 number this is -- the eighth page of the document.

15 on the screen, also, if that makes it easier for you. 16 see that? 17 A 18 Q 19 A 20 Q Yup. And if you look at the highlighted section there. Yes.

This is where youre disclosing that you hired Crawford &

21 Winiarski, correct? 22 A 23 Q Thats correct. And then in the next paragraph it goes down to explain the

24 Crawford & Winiarski methodology for estimating RPM 25 International, RPM, Inc. and Bondexs present and future

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Tompkins - Cross/Sheppard 1 asbestos liability. 2 A Do you see that?

139

I see a paragraph describing the methodology that C&W

3 used, yes. 4 Q Okay. And RPM International in its publically filed 10-K

5 calls the analysis, a widely accepted forecast to the 6 population likely to have been exposed to asbestos. 7 that? 8 A 9 Q 10 A 11 Q Yes, I see that. Okay. Subpart (a). Right. You reviewed this language before it was filed Do you see

12 with the SEC, right? 13 A 14 Q Yes, I did. Okay. Then it goes on to say that the epidemiological

15 studies estimating the number of people likely to develop 16 asbestos-related disease. 17 A 18 Q Yes, I do. And then they used the historical rate to which Do you see that?

19 mesothelioma incidents has resulted in the payment of claims by 20 us, meaning RPM International or its subsidiaries, correct? 21 A 22 Q Yes. I see that, mm-mm.

And then they used the historical settlement averages to

23 value the projected number of future compensable mesothelioma 24 claims. 25 A Do you see that? Mm-mm.

Yes, I do.

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Tompkins - Cross/Sheppard 1 Q

140

And then they take a historical ratio of the mesothelioma

2 related indemnity payments to non-mesothelioma indemnity 3 payments and historical defense costs and their relationship 4 with total indemnity payments. 5 A 6 Q 7 A 8 Q Yes, I do. Does it say anything in here about implicit defense costs? I dont see those words in here, no. Okay. Does it say anything about reallocation of Do you see that?

9 liability? 10 A 11 Q I dont see that language in here, no. Would you agree with me that the methodology described

12 here is exactly the methodology employed by Dr. Peterson in 13 this case? 14 A 15 Q Im not familiar with Dr. Petersons methodologies. Lets go back to Madison County. You were saying that

16 there were certain procedural rules in Madison County that you 17 thought made it very difficult for defendants, is that right? 18 A 19 Q Yes. And thats one of the reasons why you engaged in these

20 inventory settlements, is that true? 21 A 22 Q It was one of the factors. And when you did these inventory settlements, you were

23 settling an entire docket of a particular law firm, right, 24 trial docket? 25 A I dont know if it was an entire docket. It was whatever

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Tompkins - Cross/Sheppard 1 the group of cases that were listed and agreed to as part of 2 the settlement.

141

It may have covered several different dockets,

3 or part of a docket. 4 Q And in arriving at the aggregate number that we were

5 talking about before lunch, okay, wasnt that simply an average 6 of the settlement amounts paid to that law firm in prior 7 settlements? 8 A Not necessarily. I mean, it was a negotiated, you know, Each firm had a

9 number for X number of cases, but it varied.

10 -- you know, there was a different negotiation with each of the 11 three firms. 12 Q Didnt RPM International and RPM, Inc. rely upon a

13 multiple of the average settlement amount that was paid to a 14 particular law firm in determining the amount to be paid in a 15 group settlement? 16 A If we had past experience with that firm, wed look at it,

17 but that wasnt necessarily, you know, the proxy for, you know, 18 for how they were valued. 19 Q But you certainly recall, at least in some cases, thats

20 what you did, is that right? 21 A It could be one of the factors. And, again, along with,

22 as I mentioned before, the defense costs that it would take to 23 work up each of the cases, which was a significant factor. 24 Q But in terms, Mr. Tompkins, of arriving at the aggregate

25 amount, okay, you relied upon the average settlement with that

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Tompkins - Cross/Sheppard 1 firm, isnt that true? 2 A 3 Q As one of the factors, yes. Correct.

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So you were comfortable with the idea that a prior average

4 settlement amount was a fair settlement for a future 5 settlement, isnt that true? 6 A 7 Q It was one of the factors, but not the only one. Okay. Now, when youre settling these cases on the eve of

8 trial, okay, I think youve testified that some of those cases 9 had strong product ID and some had weak product ID, but you 10 never really worked up the cases to know, is that right? 11 A I testified that we didnt work up, necessarily, any of

12 the cases that were listed in the exhibit or the attachment 13 reflecting that aggregate settlement. So I wouldnt know if

14 one case that the plaintiffs allocated X dollars to was a 15 stronger, or weaker case. It could have been a case that we

16 might have been able to dismiss, but we simply didnt work-up 17 the cases. There was no discovery done on them, again, no

18 deposition taken of the witness, et cetera. 19 Q But certainly one of the things you were buying off there

20 was risk, isnt that true? 21 A Risk and a predictable outcome in terms of just the total

22 cost of the litigation, knowing what I was likely going to have 23 to spend in terms of defense cost. It was a more economically

24 effective means of resolving a large number of cases. 25 Q In fact, I think you testified before lunch that there was

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Tompkins - Redirect/Jackson 1 risk in every case, right? 2 A I think theres inherent risk in any case in any I mean,

143

3 litigation context in any courtroom in the country. 4 that -5 Q

So if youre settling a Madison County docket with Mark

6 Laniers firm, youre buying off the risk that Mark Lanier is 7 going to tag you in one of those cases for a huge verdict, 8 arent you? 9 A Its possible that one of those cases could pose risk.

10 Its also possible that all those cases could have been 11 dismissed. But the cost to get to that answer, it didnt make

12 economic sense, again, from an expenditure of defense cost and 13 as a general counsel looking at trying to resolve the total 14 cost of litigation. 15 Q Let me ask it again, Mr. Tompkins. Wasnt that one of the

16 reasons why you entered into these group settlements in Madison 17 County with the Lanier firm? 18 A I think Ive acknowledged its one of the -- it was one of

19 the factors, sure. 20 21 22 23 24 25 Honor. MR. SHEPPARD: THE COURT: MR. HARRON: THE COURT: I have nothing further, Your Honor.

Mr. Harron? No questions, Your Honor. All right. Thank you. Redirect?

MR. JACKSON:

Just a couple areas, if I could, Your

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Tompkins - Redirect/Jackson 1 2 BY MR. JACKSON: 3 Q Mr. Tompkins, first talking about Madison County. REDIRECT EXAMINATION

144

Did all

4 the plaintiffs that were suing you in the Madison County 5 docket, were they suing you because they had been exposed to 6 Bondex products in Madison County? 7 A No. These claimants came from, you know, all over the And most of them had other sources of exposure that And, again, many of them were cases that

8 country.

9 they were alleging.

10 didnt simply, you know, present the type of exposure that I 11 would expect from a Bondex product, you know, industrial 12 occupational exposure, et cetera. 13 Q Now, do you have the 10-K that talks about the Crawford &

14 Winiarski? 15 A 16 Q 17 A 18 19 20 Q 21 A 22 Q 23 A 24 Q Yes, I do. And was that Exhibit -- Debtors Exhibit 19(a)? This copy isnt marked, Mr. Jackson, but -MR. JACKSON: MR. SHEPPARD: Was it 19(a), Mr. Sheppard? Yes.

Mr. Sheppard tells me it was 19(a). Yes, I have it. Can you flip to Page 8 -Mm-mm. -- where Mr. Sheppard was having you walk through the

25 discussion?

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Tompkins - Redirect/Jackson 1 A 2 Q 3 4 5 A Yes. Mm-mm.

145

What was being measured by Crawford & Winiarski? THE COURT: The measure? Measured.

MR. JACKSON:

What was being measured were, you know, the claims that we

6 had in hand and what we thought we might get over the next few 7 years for purposes of a GAP accounting. It was not, again, a And it was the

8 net present value assessment of the claims.

9 total cost, including incurred and expected defense costs as a 10 result of those claims. 11 Q 12 A 13 Q And what time period was that calculation for? This was in 2006. If you look right below the paragraph where we have the

14 highlighted, I think it says its a 10-year period, if that 15 helps you. 16 A Yes, thats correct, only through the period 2016. And

17 specifically does not include asbestos liabilities for any 18 period past 2016. 19 Q And your time in which you were responsible for Bondex

20 asbestos litigation, do you recall any cases arising from the 21 alleged private label sales, either J.C. Penny or Montgomery 22 Ward? 23 A 24 Q No, not in particular. And if you looked at E-426, which was the 1966 annual

25 report.

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Tompkins - Recross/Sheppard 1 A 2 Q Yes.

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It was one of the ones that I dont think you had the hard But he showed you various things where it talked

3 copy for.

4 about the advantages of the Reardon acquisition from Bondex. 5 A 6 Q Yes. Do you recall any discussion in there specifically about

7 joint compound? 8 A No. It was largely, I think, waterproofing paint, you

9 know, basement waterproofing paint. 10 11 further. 12 13 14 15 BY MR. SHEPPARD: 16 Q Do you know when Bondex first exposed that it had private THE COURT: Any redirect -- Im sorry, recross? Recross, Your Honor, very briefly. MR. JACKSON: Thank you, Your Honor. Nothing

MR. SHEPPARD:

RECROSS EXAMINATION

17 label agreements with Montgomery Ward and J.C. Penny in its 18 interrogatory answers in asbestos cases? 19 A No, I dont, Mr. Sheppard. What I do know is when I took

20 over the litigation as managing it, I had a couple of meetings 21 with coordinating counsel and local counsel and said that I 22 expected them to, you know, always make sure weve disclosed 23 everything. 24 we had. 25 Q If I were to tell you, Mr. Tompkins, that those private And I had no reason to believe at that time that

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1 label agreements were not disclosed on the interrogatories in 2 1980, would that surprise you? 3 A I dont know that it would surprise me or not. I dont --

4 again, I said I dont have a lot of familiarity with the 5 private label agreements other than recalling J.C. Penny. 6 Q Certainly werent disclosed in 1990, either, would that

7 surprise you? 8 A 9 Q 10 A 11 12 13 Again, I dont -- I dont have a -So you dont know when they were disclosed, is that right? No, I dont. MR. SHEPPARD: THE COURT: Nothing further.

Is this witness able to be excused? I was just going to ask that, Your

MR. JACKSON:

14 Honor, if may the witness be excused. 15 16 17 18 THE COURT: Are you going to recall him? No, Your Honor. He may be excused.

MR. SHEPPARD:

UNIDENTIFIED ATTORNEY: THE COURT: All right.

No objection from us. Youre excused. Thank you,

19 Mr. Tompkins. 20 21 THE WITNESS: MR. EVERT: Thank you, Your Honor. We would call Dr.

Thank you, Your Honor.

22 Denise Martin to the stand, please. 23 24 25 THE COURT: Dr. Martin.

DENISE MARTIN, DEBTORS WITNESS, SWORN DIRECT EXAMINATION

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Martin - Direct/Evert 1 BY MR. EVERT: 2 Q 3 A 4 Q 5 A 6 7 8 Would you state your name for the record, please? Denise Martin. And Dr. Martin, is it? Yes. MR. EVERT: THE COURT: MR. EVERT:

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Im going to hand Your Honor Debtors-96. All right. Is Dr. Martins curriculum vitae, which I

9 think is unobjected to. 10 11 12 13 14 Q UNIDENTIFIED SPEAKER: MR. SHEPPARD: THE COURT: MR. EVERT: No objection, Your Honor.

No objection. Thank you.

All right.

We would move its admission, Your Honor.

Dr. Martin, would you briefly tell us your educational

15 background? 16 A Sure. I got a BA from Wellesley College in 1985, and a

17 Masters and Ph.D. degree in economics from Harvard University 18 in 1988 and 91 respectively. 19 Q 20 A 21 Q 22 A And where are you currently employed? I work for NERA Economic Consulting. And what do you do for them? Im a senior vice-president. I work in a number of One of those

23 different practice areas doing economic analysis.

24 areas is our mass torts and product liability practice. 25 Q And have you performed market share analyses in the past?

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Martin - Direct/Evert 1 A Sure. Estimating market share is something that

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2 economists at NERA and other places do routinely, and its 3 something that Ive been asked to do on a number of occasions. 4 Q 5 A And in what context have you made those? There have been different contexts. In the antitrust

6 context, for example, I have estimated market share when two 7 companies are going to merge. In the mass torts context for

8 Owens Corning I estimated its market share, the high 9 temperature mechanical insulation market. For consulting

10 assignment, I estimated the market share of a company that 11 installed boilers, I think it was. 12 different occasions. 13 Q And outside of asbestos litigation, you said antitrust Theres been a number of

14 litigations? 15 A Antitrust, sure. I mean, thats one of the fundamental

16 analysis in mergers is estimating market share for the 17 companies before the mergers take place and then after the 18 companies are going to have merged. 19 Q 20 A And what were you asked to do in this case? I was asked to estimate Bondexs share of the U.S. joint And then to consider its claims history, and

21 compound market.

22 more importantly, the claims projections that were put forward 23 in this matter, sort of in light of that market share analysis. 24 Q And has the analysis that you have done in this case been

25 performed in compliance with established scientific principals

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Martin - Voir Dire/Dorsey 1 in the field of economics? 2 A Sure. And as I said, market analysis -- market share Theres

150

3 analysis is something thats done all the time.

4 academic articles published on it and text books that have 5 chapters that are devoted to it. And all the analyses that

6 have gone into that have also been widely used, and Im 7 applying them here. 8 Q And will the opinions you offer today be given to a

9 reasonable degree of scientific certainty? 10 A 11 Yes. MR. EVERT: Your Honor, we would tender Dr. Martin as

12 an expert in economics and market analysis. 13 14 15 Honor. 16 17 18 BY MR. DORSEY: 19 Q 20 A 21 Q Good afternoon, Dr. Martin. Good afternoon. One of the things you did in connection with this case, in THE COURT: All right. VOIR DIRE EXAMINATION THE COURT: MR. DORSEY: Any objection? Id like to voir dire the witness, Your

22 addition to your market share analysis, was to look at the 23 amount of dose that someone would receive from using a Bondex 24 product, is that correct? 25 A I would say those are related analysis. I looked at

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Martin - Voir Dire/Dorsey 1 market share, Bondexs share of the joint compound market of

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2 the fibers used in production of joint compound, and the dose 3 contributed by any source, joint compound or any other product. 4 Q And the amount of dose that someone receives is something

5 thats a medical issue, is that correct, from using a 6 particular asbestos-containing product? 7 A 8 Q Im not sure what you mean by medical issue. Have you ever done it before? Have you ever done an

9 analysis of the amount of dose that some receives from an 10 asbestos-containing product before? 11 A Oh, sure. We use dose all the time. Ive done

12 forecasting in asbestos cases where one of the inputs to the 13 forecast is estimating the dose that individuals would have 14 been exposed to. 15 Q And youve done that analysis yourself, as opposed to

16 relying on the epidemiological studies of someone else? 17 A If you mean have I gone out and actually measured, you Of course we rely on

18 know, the fibers per milliliter, no.

19 secondary sources for that, as do all forecasters in this 20 field, including Doctors Peterson and Vasquez here. 21 Q And there are no epidemiological studies that have to do

22 with the amount of dose that someone would have received from 23 using a Bondex product, is there? 24 A I dont recall seeing anything Bondex specific. I relied

25 on information from an occupational -- a study of occupational

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Martin - Voir Dire/Dorsey

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1 professional drywallers, as well as a study done by the CPSC of 2 drywaller exposure. 3 Q 4 A And those are in the commercial context, correct? No. I believe the CPSC study is -- was done specifically

5 when they were trying to enact regulation about asbestos in 6 consumer, do-it-yourself joint compound. So that was

7 considering the at-home, you know, do-it-yourself market. 8 Q So you believe that you relied on the CPSC study relating

9 to do-it-yourself joint compound application to determine the 10 dose that someone received from using a Bondex joint product? 11 A Yes. I used that as one of the scenarios that I I considered a range of potential dose that an

12 considered.

13 individual may have received from using Bondex product, ranging 14 from the Verma and Middleton study I was talking about before, 15 up through the CPSC estimates. 16 Q But you did testify that you didnt actually go out and

17 measure the amount of dose that someone would have received 18 yourself, is that correct? 19 A 20 Q 21 A 22 Q 23 A 24 No. And youre not a medical doctor, is that correct? Thats correct. Youre not an epidemiologist, is that correct? Thats correct. MR. DORSEY: Your Honor, we would oppose Dr. Martins

25 testimony on the issue of the dose that a person would receive

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Martin - Voir Dire/Dorsey 1 from using Bondex joint product. 2 MR. EVERT:

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Your Honor, Dr. Martin has testified that

3 shes relied on the type of information that economists 4 routinely rely upon in estimating these types of issues. 5 relied on the published peer reviewed literature and the 6 publications of Doctors Verma and Middleton, as well as the 7 government documents in terms of the Consumer Product Safety 8 Commission. I think that we dont need to have an industrial Shes

9 hygienist come in and say I made a specific measure of a 10 product in order for her to rely on that. 11 THE COURT: I believe that the issue will go to the

12 weight of her testimony, not to whether or not shes qualified 13 to offer an opinion because she has testified that this is the 14 type of information that economists would typically rely upon 15 to come to this study. So its subject to cross examination, The objection is overruled.

16 certainly, after she testifies. 17 18 19 20 BY MR. EVERT: 21 Q MR. DORSEY: MR. EVERT:

Thank you, Your Honor. Thank you, Your Honor. DIRECT EXAMINATION

Now, Dr. Martin, you testified a minute ago you were asked

22 to perform a market share analysis and ultimately compare that 23 to the Nicholson dose in this particular case. Had you done a

24 similar market share analysis for Bondex in the past? 25 A Yes. In 2005 I had been asked by Bondex to estimate its

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Martin - Direct/Evert 1 share of the joint compound market. 2 Q And what is different about the analysis that you have

154

3 done now for this case as opposed to the one you did before? 4 A In 2012 we really just took a fresh look at every data We

5 input we had used in 2005, every assumption that we made.

6 wanted to ensure that the report we were going to submit to the 7 Court was as rigorous and reliable as we could. 8 So, for example, we got rich, a richer -- we found a

9 richer data set on the size of the U.S. wallboard market and 10 the components of that market. 11 make our analysis better. 12 We did additional sensitivity tests, you know, we We were able to use that to

13 wanted to make sure even if we could have pushed the envelopes, 14 pushed the boundaries, we were measuring the market share 15 correctly. 16 We were able to compare it to contemporaneously So all of those, all of

17 prepared information in the 1970's.

18 those new factors we took into account. 19 Q And did your methodology differ at all of the two

20 analyses? 21 A Not really. As I said, market share analysis is, you

22 know, a well accepted technique and theres just sort of not 23 that many different ways to do it. We really used essentially

24 the same method that we had used in 2005 in our updated 2012 25 analysis.

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Martin - Direct/Evert 1 Q

155

And did the results of your updated 2012 analysis differ

2 materially from your results of your 2005 analysis? 3 A 4 Q No, they didnt differ in any practical sense. Dr. Martin, do you have a copy of your report in case you

5 need to refer to it to refresh your recollection? 6 A 7 Q 8 Yes, I do. Okay. MR. EVERT: Your Honor, I didnt know if you wanted a

9 copy of Dr. Martins report in case you needed to refer to it? 10 THE COURT: If no one objects. I understand that the

11 report itself is hearsay, its not the testimony of the 12 witness, but sometimes it does help to go back through the 13 notes and see what the witness was saying since I dont have 14 the particular expertise. So if you object I wont accept it,

15 if you do Ill take it for that purpose. 16 17 in effect. 18 19 20 -21 MR. EVERT: We have no objection and the sauce rule MR. FINCH: Your Honor, as long as the sauce rule is

I mean normally it doesnt come -THE COURT: MR. FINCH: Sauce rule will be in effect. -- it doesnt come into evidence so it is

22 is in effect. 23 24 THE COURT: MR. FINCH: Yes. No --

Whats sauce for the goose is sauce for

25 the gander.

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Martin - Direct/Evert 1 2 3 4 hold on. 5 6 7 8 9 10 MR. EVERT: MR. FINCH: MR. EVERT: Oh, the goose gander rule. Goose gander. That would be quite different.

156

Oh, now

We have no objection, Your Honor. THE COURT: MR. EVERT: THE COURT: MR. EVERT: THE COURT: MR. EVERT: All right. May I approach? Yes, please. Its the report and the rebuttal report. Okay. These are not marked in any way? Would you like me to

No, they are not.

11 mark them just for demonstratively? 12 13 14 THE COURT: MR. EVERT: THE COURT: I think it would be helpful, yes, please. Okay. I will accept all reports that anybody

15 chooses to provide me as demonstrative exhibits and certainly 16 not for the truth of the matters asserted. 17 the terminology is easier that way. 18 MR. EVERT: Were working on getting that marked, Its just sometimes

19 Your Honor. 20 21 Q THE COURT: All right. Thank you.

Now were obviously going to talk about how you got there,

22 Dr. Martin, but tell me, what is your opinion about the market 23 share of Bondex in regard to the sale of joint compound from 24 the period of 1950 to 1977? 25 A We estimated that Bondexs market share over that period

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Martin - Direct/Evert 1 averaged .5 percent so one-half of one percent.

157 Again, using

2 all of the additional information that we had available to us 3 in 2012. 4 Q 5 A And thats one-half of one percent of what? Of the U -- of all the joint compound sold in the U.S.

6 over the period 1950 through 1977. 7 Q Okay. All right. Well lets talk about how you got

8 there.

What information did you have available from the

9 debtors? 10 A We had sales invoices for I believe it was five years,

11 1978, 79, and then 83 through 85, and we were -- they were 12 hard copy but we were able to get from those sales invoice 13 data, all sales of joint compound of any type sold by Bondex 14 during those years. 15 We had the companys overall sales including joint

16 compound as well as other products for all of the years between 17 1950 and 1985, a couple years might have been missing, but 18 almost all of those years. 19 And so we to -- we wanted the joint compound

20 information back in time, we wanted the joint compound sales 21 back in the period 1950 to 1977. So we used the relationship

22 between joint compound sales and overall sales in the late 23 70s, early 80s. Estimated that to be about 15 percent and

24 assumed that same proportion would have held going back in time 25 and then projected the -- we extrapolated the joint compound

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Martin - Direct/Evert 1 sales back in time using that method. 2 MR. EVERT:

158

Excuse me, Your Honor, if I may approach

3 the Court with Demonstrative 6 and Demonstrative 7 which are 4 Dr. Martins affirmative report and her rebuttal report. 5 6 Thank you. 7 8 Q MR. EVERT: Yes, Your Honor, thank you. THE COURT: All right. One second please. Okay.

So you had more recent data as to the sales of joint

9 compound, is that right? 10 A 11 Q Thats right. And you took that data and you used it and applied it to

12 overall sales data that you had for the entire period? 13 A Right. We had overall sales data for every year going

14 back in time. 15 Q And are those the typical kind of analyses that you would

16 perform in trying to back cast or estimate market share? 17 A Sure. Thats something -- extrapolation again is a well

18 accepted statistical technique, something that I use all the 19 time and feel confident using here. Although we did tests to

20 make sure that it was -- gives a rigorous and reliable result 21 here. 22 Q Well lets talk about that. I think you call them

23 sensitivity analyses I think? 24 A 25 Q Right. All right. So -- and what is a sensitivity analysis?

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Martin - Direct/Evert 1 Whats it designed to do? 2 A I mean a number of things. You want to compare -- you

159

3 want to compare your results to other information you have 4 available to see if it sort of lines up. Does it make sense?

5 Does it seem like its in line with what youd expect it to be 6 given sort of independent other sources. 7 You want to test whether the result is really If you make alternative Does

8 sensitive to the assumptions.

9 assumptions does it seem plausible, not out of the realm? 10 the result change that much?

And so weve done those kind of

11 tests here and made sure that this extrapolation backward is 12 rigorous and reliable and we found that it was. 13 Q 14 A So tell me about the sensitivity analyses if you would. I mean the first thing we did was talk to Jack Fleming who

15 is the president of Bondex and his -- he was represented to us 16 as the most knowledgeable about Bondexs history and he could 17 think of no reason why the proportion of joint compound sales 18 to total sales would have been different back in time, would 19 have been different in the, you know, 50s and 60s than it was 20 when we able to measure it in the 70s and 80s. So that was

21 one piece of information, although he wasnt actually there at 22 the time. 23 We also looked at -- we also looked at data. We

24 looked at how the joint compound series that we had estimated 25 tracked the wallboard sales. So did they kind of move together

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Martin - Direct/Evert 1 and we say yeah, they do, you know, Bondexs joint compound 2 sales as we back cast them are growing over time and the 3 wallboard sales is, the construction market is growing over 4 time.

160

So that was another piece of information that we used to

5 conclude it was reliable. 6 We had data on Bondexs fiber usage, the fibers that

7 went into joint compound production, and we see that those are 8 higher in the 70s than they are in the 60s. Thats another

9 piece of information that we have that its not as if joint 10 compound was some, you know, just giant source of revenue for 11 Bondex going back in time, it was different in the 70s and 12 80s. We have evidence that it was -- that it was about the

13 same proportion of its revenues all along. 14 Q So what was the ultimate conclusion of the sensitivity

15 analyses? 16 A We concluded that we could use the calculation made in the

17 late 70s and early 80s on the proportion of joint compound 18 sales as compared to total sales to back cast, to extrapolate 19 what Bondexs joint compound sales would have been over the 20 period from 1950 to 1977. 21 Q Okay. So at that point you had what you viewed as a

22 reliable estimate of Bondexs joint compound sales in dollars, 23 is that right? 24 A 25 Q Thats right. And at some point did you need to convert that to pounds?

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Martin - Direct/Evert 1 A 2 Q 3 A Yes. All right. And why did you need to do that?

161

Again you can imagine for a market share analysis your

4 numerator is going to be, you know, a companys sales and the 5 denominator is going to be industry sales. 6 sales measured in pounds. We had the industry

We had the joint compound market in

7 the U.S. as a whole measured in pounds, so we needed to 8 translate Bondexs sales which we had in dollars into pounds to 9 make the comparison apples to apples. 10 Q Okay. So lets talk about how you did that. How did you

11 translate the dollar sales of Bondex joint compound from 1950 12 to 1977 to pounds, total pounds sold 1950 to 1977? 13 A Another piece of information we had from the company was So for all the products that sold including its

14 price lists.

15 joint compound products we had -- we knew how much it cost 16 depending on how, you know, how big the -- how many pounds were 17 involved and what the form of the joint compound was. And we

18 had that for a number of years during the 60s and the 70s. 19 We had a lot of price data. 20 And then as I mentioned we had some sales, actual So we

21 joint compound sales data in the late 70s, early 80s.

22 got the mix of the kinds of joint compound products sold from 23 the 70s and 80s, you know, how many -- what proportion of the 24 product was sold in five-pound bag versus 25-pound bags for 25 example or dry mix and ready mix.

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Martin - Direct/Evert 1 We got that mix from the 70s and 80s and we used

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2 that to get a sort of a weighted average price based on these 3 price lists that we had back in time so that we could get a -4 we could get a -- in each year we knew how much -- what price 5 they were selling their joint compound for on average and then 6 simply dividing the joint compound sales in dollars by this 7 average, this weighted average price per pound we could come up 8 with joint compound in pounds. 9 Q So you had a range of prices that went back into the early

10 years, into the 50s, is that right? 11 A I think the earliest data might have been in the early

12 1960's but it went back in time certainly, yes. 13 Q Okay. And you also had the later data I think you said

14 that dealt with the different types of joint compound that fell 15 within that price range that were sold, is that right? 16 A 17 Q Thats right. And explain to me -- so that converted into a weighted If you would explain that for us please? If you want to -- we have total dollars of joint We want to divide that by the average price at

18 average. 19 A

Sure.

20 compound sold.

21 which all that joint compound was sold. 22 What I have is not exactly that. What I have is a

23 list of all of the different prices at which various joint 24 compound was sold and then I have a mix, I have weights that I 25 can apply to those that tell me how much weight should I give

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1 to this product that was 15 cents a pound versus this product 2 that was 12 cents a pound. And so by combining those two

3 sources of information I can determine, I can estimate the 4 average price per pound at which the joint compound was sold 5 every year going back in time. 6 Q And once you completed those calculations did you find

7 whether or not Bondexs sales of pounds of joint compound 8 roughly tracked the growth of the joint compound industry as a 9 whole? 10 A Yeah, they really did. It wasnt -- the price adjustment I

11 wasnt that important.

The price didnt change that much.

12 think it didnt change at all over the 60s really, the average 13 price per pound. The weighted average price per pound was So the translation

14 really very constant over that time period.

15 from dollars to pounds didnt really change the analysis that 16 much. 17 Q 18 A 19 Q 20 A 21 Q 22 side. So any range that created was very small, is that -Thats right. Okay. Yeah. All right. So, all right, weve talked about the Bondex

How did you go about estimating the overall joint

23 compound market? 24 A So we looked far and wide for was there an estimate out

25 there of the size of the U.S. joint compound market and we

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Martin - Direct/Evert 1 didnt find any, we didnt find any information about that.

164 We

2 did find good data on U.S. wallboard sales so that total amount 3 of wallboard that was sold in the U.S. all the way back to 4 1950, you know, going back each year from 1950 through 1977. 5 And we know that wallboard has to get put up and what

6 it gets put up with is joint compounds so theres going to be a 7 significant correlation between the size of the wallboard 8 market and the size of the joint compound market. 9 There is something called a coverage ratio which

10 tells you how much joint compound you actually need to put up 11 wallboard. 12 ratios. So we collected information on those coverage

And we used the median one, we used the central

13 coverage ratio that we found to essentially translate wallboard 14 sales into joint compound sales. How much of the joint

15 compound did you have to sell given how much you have to use to 16 put up walls to get all those walls put up? And that was the

17 way we developed our estimate of the U.S. joint compound 18 market. 19 Q I guess I should not assume this to be true. In your

20 research in regard to the use of joint compound and wallboard, 21 tell me from a construction perspective how do they 22 interrelate? 23 A Whats one have to do with the other?

Joint compound is used to seal the seams between So you put two pieces of wallboard together, you

24 wallboards.

25 put a layer of joint compound on top of it, you can put tape on

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1 it then, you put more joint compound on it, and thats how you 2 sort of fuse the seams of the walls together. 3 Q 4 what? 5 A Its quoted in pounds of joint compound per square foot of So youre putting up a wallboard thats, you know, And the coverage ratio that you described represents

6 wallboard.

7 100 square feet, it tells you how much in pounds you need, how 8 much joint compound you need in pounds to just put the seam on, 9 to seal the seam between the walls. 10 Q 11 A 12 Q So you had good data on wallboard sales -Yes. -- and you needed to try to find a way to convert that to

13 the joint compound market given that wallboard and joint 14 compound are hopelessly intertwined. 15 A 16 Q Thats right. Is that right? Okay. So once you determined the coverage Is that --

17 ratio how did you then use that or is that just simple math? 18 A Yeah, thats just simple division again. We know how many

19 feet of wallboard were sold in the U.S. and were able to just 20 multiply that by the amount of joint compound you need per 21 square foot of wallboard to get an estimate of the aggregate 22 amount of joint compound. 23 Q Okay. So more math I guess then takes us to market share

24 I presume? 25 A Right. Market share. Once you have the numerator and the

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1 denominator which we have now, we have Bondexs joint compound 2 in sales in pounds and we have the U.S. joint compound market 3 in pounds, we just divide. 4 Q All right. And then did you perform additional You talked about those that you

5 sensitivity analysis?

6 performed on the numerator which are Bondexs joint compound 7 sales in pounds. Did you perform additional sensitivity

8 analysis on the denominator which is the U.S. joint compound 9 market? 10 A Im sure that we did. Im not -- Im trying to think of

11 what they are sitting here, Im not -- its not springing to my 12 mind. 13 Q 14 A I -Well how about the coverage ratios? Did -I

A coverage ratio for sure, yeah, thats right.

15 mentioned we used the median which is the sort of central 16 tendency, the 50th percentile. There was a wide range of joint

17 compound coverage ratios that we found in our research, I think 18 it ranged from .06 pounds per square foot up to, you know, .5 19 so, you know, its a ten-fold range. 20 We used the median for our base case which is .125

21 pounds of joint compound per square foot of wallboard, but we 22 dont know that the median is the right answer. We dont know

23 the mix of the different kind of products that were out there, 24 we dont know whether lots of low coverage product were sold, 25 lots of high coverage product.

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And I think, sorry, I think the midpoint is likely to

2 be a good estimate, but we also tested the sensitivity by using 3 a low end, we used .06 pounds per square foot and re-estimated 4 the size of the U.S. joint compound market and we used .375 5 pounds per square foot and re-estimated the size of the U.S. 6 joint compound market. 7 And making those changes I said our base case

8 estimate is that its one-half of one percent is Bondexs 9 market share. If you used the low end ratio, youre saying the

10 U.S. market is small, not that much joint compound is needed to 11 put up all that wallboard, I think the estimate we come up with 12 for Bondex is just over one percent. If you use the high end,

13 it takes a lot of joint compound to seal all those, all that 14 wallboard, the estimate for Bondex is .17 percent so two-tenths 15 of one percent. So thats a range assuming pretty extreme

16 values for the coverage ratio that we developed. 17 Q So through the ranges, I just want to make sure I

18 understand, through the various ranges that you found in the 19 sensitivity analyses that you performed, that resulted in your 20 ultimate conclusion being a range? 21 A I think its fair to say. Is that fair to say?

Were not exactly sure where

22 Bondexs market share falls within the range of .17 percent to 23 one percent. Although my expectation would be it would be Its unlikely that all the wallboard

24 somewhere in the middle.

25 got put up at very low coverage ratios or that all the

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Martin - Direct/Evert 1 wallboard got put up in very high coverage ratios. I think

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2 its reasonable to expect its somewhere in the middle. 3 Q Now were you able to find or become aware of any

4 confirmatory information that was contemporaneous that assisted 5 you in your analysis? 6 A Yeah, and that was new in 2012. We didnt know about this But we had

7 information in 2005 when we did our initial work.

8 access to a memo prepared, an internal memo prepared I think it 9 was in 1972 or 1976. 10 Q 11 A 12 Q 13 A 14 15 16 17 18 A 19 Q I happen to have it. You do? Yeah. By U.S.G. MR. EVERT: THE COURT: MR. EVERT: THE COURT: Thank you. Dr. Martin, this is an internal U.S.G., United States Your Honor, this is Debtors 22. All right. If I might approach the witness? Yes. Okay.

20 Gypsum Company memo dated January 28, 1976, is that correct? 21 A 22 Q 23 A Yes. And tell me how you used this in your analysis. It was really just confirmatory. This memo gives both an

24 estimate of the U.S. joint compound market, which is what we 25 were trying to estimate, as well as an estimate of market

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Martin - Direct/Evert 1 shares of some -- of the competitors in that space.

169 And so we

2 used this to really just as confirmatory of the analysis we had 3 done. 4 Q And the language in here that specifically youre

5 referring to, it indicates in the second sentence, as a result 6 of the recent meeting regarding the status of our patent 7 program you asked for some input on our industry position and 8 some definition of the total market, correct? 9 A 10 Q Yes. And its entitled the market and our position on joint

11 treatment is the subject matter of the memo, is that right? 12 A 13 Q Right. And it indicates about halfway down on the first

14 paragraph, as a result we estimate that we have some 30 percent 15 of the joint compound market -- we of course being U.S. Gypsum. 16 A 17 Q Right. Georgia Pacific approximately 20 percent, Proco perhaps

18 ten percent, National Gypsum seven percent, Hamilton four 19 percent, Wellco three percent, Payco three percent, and the 20 balance shared by some 77 competitors, probably none of which 21 have as much as two percent of the market. 22 confirm the analysis that you reached? 23 A Well Bondex is not listed amongst the seven so its Now how does that

24 presumably in the 77 competitors that have no more than two 25 percent of the market. If you divide 77 by the, sorry, the 23

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Martin - Direct/Evert 1 percent remaining, theres 23 percent unaccounted for, we 2 divide that by 77 you get I think its .3 percent.

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So thats

3 consistent with our joint -- our Bondex joint compound market 4 share estimate as well as the no one has as much as two 5 percent, that language. 6 Theres also just the 1.3 million pounds at the

7 bottom, they give an estimate of the U.S. market as a whole for 8 joint compound. We estimated that as the denominator of our

9 market share analysis and we got almost exactly that same 10 number, 1.3 billion pounds for the size of the U.S. joint 11 compound market in I believe it was 1975. 12 Q So youre referring to the last sentence that reads,

13 however for our companies here lets quantify the total U.S.A. 14 market large package joint compound as 1.3 million pounds or 15 approximately a $100 million market? 16 A 17 Q Right. Okay. And your estimate of the joint compound market in

18 1976 was? 19 A It was really right in that range, it was really about one

20 point -- I think one scenario had 1.24 billion and one scenario 21 had 1.34 billion maybe, but it was right around the 1.3 billion 22 that they have in this document. 23 Q And was that the same conclusion that you had reached

24 about the size of the market when you did the report in 2005? 25 A It was similar in that year, yes.

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Martin - Direct/Evert 1 MR. EVERT: Your Honor, if I might approach?

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2 Debtors Exhibit 23. 3 Q 4 Dr. Martin, Ive handed you Defendants or Debtors 23. UNIDENTIFIED SPEAKER: Excuse me, Your Honor. Could

5 we switch back so we can see it on the -6 MR. EVERT: Oh, sorry. Oh, I dont have it on the -It doesnt matter to me.

7 sure, you can put it up if you want. 8 Q 9 A Debtors 23. Sure.

If you tell me what that is?

This is a report that was prepared by Johns

10 Manville in I believe it was 1974. 11 Q 12 A 13 Q 14 A 15 Q So this is -Yeah, sorry. Oh, Im sorry. Go ahead.

I was going to say on asbestos fiber usage. So this is another historical document contemporaneous

16 with the time of manufacture, is that right? 17 A 18 Q Thats right. And how did you use, ultimately use the information in

19 this document to assist you in confirming your analysis? 20 A 21 Q 22 A 23 Q 24 A 25 This document on, Im not sure what page it is. I think the pages are actually handwritten so its -Page 22 maybe? -- its Page 26 I think. 26? Right, 26. MR. EVERT: Well lets put it this way. Its the one

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Martin - Direct/Evert 1 before 27, Your Honor. 2 3 4 Q THE COURT: MR. EVERT: It -I have it. You cant -- its hard to see.

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But this table lists fiber consumption, you know, both in

5 the U.S. and then for the world and it breaks it out by 6 category, how much is, you know, used total in the U.S. and 7 then how much is used in each of the industries -- each of the 8 products in which asbestos is used. 9 The one we focused on was the joint cement entry And it

10 which is sort of toward the bottom of the page.

11 indicates that there were 12,227 metric tons of asbestos fiber 12 used in the production of joint compound in 1974. 13 We used that data together with data we had from the

14 company on -- from Bondex on its fiber consumption, on the 15 amount of asbestos fiber used in the production of really all 16 its products but we used -- we assumed theyre all used to 17 produce joint compound. 18 And those -- if I can refer to the number -- but

19 those fiber cards indicated that Bondex had used 185 metric 20 tons of asbestos fiber in the production of joint compound. 21 So this was confirmatory in the sense that if I So its

22 divide 185 by 12,227 I get one and a half percent.

23 another way of thinking about how big a player is Bondex in the 24 joint compound market. 25 also of the fibers. Its using a relatively small share

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I should mention that thats a 19 -- that calculation

2 I just did is from fiber cards in 1972, the one and a half 3 percent. If you go back to 70 or 71 that one and a half If you go back But

4 percent becomes .8 percent I think it is.

5 further in time I believe it would be a little lower.

6 theyre right in the range, theyre right in the same range of 7 the market share calculations that we had done. 8 Q All right. So let me break that down a little bit so that

9 youre last point, the fiber card that you used for that 10 calculation was the highest one? 11 A Is that --

Yeah, we used 1972 both because it was closest in time to

12 this document, we wanted something close in time to 1974, but 13 also we wanted to -- we wanted to be conservative, we wanted to 14 say how big can Bondexs market share possibly have been. So

15 we used the year in which the fiber cards indicated Bondex had 16 consumed, had used in its production the most asbestos fiber. 17 Q And this -- the JM document that youre referring to now,

18 it discusses both total fiber usage and fiber usage assigned to 19 the joint cement or joint compound -20 A 21 Q 22 A 23 Q Thats right. -- part of the asbestos business, is that right? Yeah. And the calculations you just described, which number were

24 you using then? 25 A Again were just focusing on joint compound. If I were to

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1 say what share of the total asbestos fibers does -- did Bondex 2 use, I think thats in a footnote of my report, I think its 3 two one-hundredths of one percent and thats based on the fact 4 that joint compound is actually a fairly small, the industry is 5 a fairly small consumer of asbestos fibers. 6 We look at the percentage column on Page 26 and go to

7 joint cement you see that joint cement accounts for, the 8 production of joint cement accounts for one and a half percent 9 of all of the asbestos fiber used in the production of asbestos 10 products in the U.S. 11 So its a, you know, Bondex was a small player in Joint compound is actually a small player in

12 joint compound.

13 the consumption of asbestos fibers. 14 Q Now how did the presence of these contemporaneous

15 documents that were obviously produced back in the 70s when 16 asbestos-containing joint compound was manufactured, how did 17 that impact your overall analysis or did it change it or did it 18 serve merely as a check? 19 A I mean it certainly made us feel more confident in our --

20 in our estimates and I believe them to be rigorous and reliable 21 on their own, but were looking back in time, right, Im 22 standing in 2012 trying to estimate what a companys market 23 share was, you know, back in the 50s, 60s, and 70s, thats a 24 long, a long time ago. 25 I have good data to do that, but its comforting,

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1 its reassuring to see that documents that were prepared at the 2 same time back in the 70s are really coming up with very 3 consistent, very consistent answers. 4 Q Okay. Now at the debtors request did we ask you to

5 review the reports of Dr. Vasquez and Dr. Peterson in regard to 6 their forecast of future mesothelioma claims against Bondex? 7 A 8 Q Yes. And did you find their forecast in that regard consistent

9 with your market share analysis? 10 A 11 Q 12 A No. In what way? Again, I estimated now two different ways that Bondex is a

13 small player in the market for joint compound, you know, 14 one-half of one percent and now we have new evidence that says 15 joint compound is a small part of the asbestos fiber 16 consumption. 17 And then I see the reports of Doctors Peterson and

18 Vasquez and they say that Bondex will be implicated, Bondex 19 will have exposed its like 35 or 40 percent of all of the meso 20 incidences that are going to develop in the future. So the

21 meso incidences are going to develop from all the other 22 sources, all the other asbestos sources out there, not just the 23 joint cement but all the other sources and not just Bondex but 24 all the other joint cement producers. 25 Somehow its possible that even though it has a very

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1 small share of this very small market its going to affect 40 2 percent of the meso incidences going forward? It just doesnt

3 make statistical sense to me that that would be the case. 4 Q So did you perform an additional statistical analysis to

5 try to ascertain if you were missing something in that 6 conclusion? 7 A Yeah, yeah, we tried to think what could we be missing and

8 the Vasquez and Peterson analyses are grounded in whats called 9 the Nicholson study and thats really based on dose. It says

10 dose of asbestos is, you know, sort of directly related to the 11 incidents of asbestos disease that manifests. 12 So we started thinking about is it possible that

13 somehow the dose that Bondex contributed, you know, lets put 14 aside the number of pounds it sold or the fibers it used, but 15 is it something about the dose of putting up drywall, of using 16 joint compound that would mean Bondex could be responsible for 17 a whole lot more, a lot more mesos? 18 So we undertook to do an analysis to essentially

19 translate the market share into dose to see what the total dose 20 that could possibly have been contributed by Bondex and to 21 divide that by the total dose from all these other sources, 22 from all these other asbestos products as estimated by Dr. 23 Nicholson. 24 Q Well as was pointed out earlier youre not an industrial So how did you go about

25 hygienist or an epidemiologist.

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Martin - Direct/Evert 1 estimating the dose from Bondex products? 2 A

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We, you know, we turned to external sources, we read the

3 studies that had been done that informed my opinion about that. 4 Really what we need to know is two things, how long its going 5 to take to use Bondex product because the longer it takes to 6 use it the longer the exposure will go so the more, you know, 7 dosing that can occur, and then we need to know whats the 8 intensity of exposure, you know, how -- whats the fibers per 9 million that someone is sitting amongst if theyre using, on 10 average, is how theyre measured, time weighted averages, if 11 theyre using Bondex product. So we turned to published or

12 external sources on both of those, on both of those inputs. 13 Q 14 find? 15 A Theres a company called RSMeans that puts together So what external sources did you turn to? What did you

16 construction data and that said for -- this goes to how long it 17 takes to use the product -- it had data that said in an eight 18 hour period two professional drywallers could use 250 pounds of 19 joint cement because thats all theyre doing all day is 20 putting up drywall. 21 a person. 22 That struck is as a lot thinking about the Very, very rapid use of joint compound. We said lets They go through 250 pounds. So 125 pounds

23 do-it-yourself market.

24 So we went, you know, totally the other way.

25 assume it takes eight hours to use five pounds, a single bag of

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Martin - Direct/Evert 1 Bondex joint compound.

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I think we also did sensitivity tests

2 where we said its twelve and a half pounds so its, you know, 3 one-tenth, theyre one-tenth or one-twentieth as quick at 4 putting the joint compound up as the professional drywaller 5 might be. 6 Q So let me make sure I understand the range. So your range

7 of assumptions went from the do-it-yourself user for which you 8 assumed what? 9 A We assumed it would take eight hours for them to go

10 through five pounds of joint compound. 11 Q Okay. And then at the other end of the spectrum your

12 research revealed that a commercial drywaller, somebody who 13 does this all of the time who is obviously -- that they would 14 go -- they would use how much? 15 A 16 Q 17 A 18 Q 19 A In eight hours theyd use 125 pounds -Okay. -- of joint compound. So thats a 25-fold difference. Yeah. Were assuming its going to take a very long time,

20 theyre going to be exposed for a really long time putting up 21 just five pounds, five pounds of joint compound. 22 Q 23 dose? 24 A To get the intensity of exposure we, again, we did This And then that gave you the time. How did you handle the

25 research and came up with a couple of different sources.

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Martin - Direct/Evert 1 Berman Middleton study that I had referred to earlier, those

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2 are the authors, they estimated exposure from the application 3 of joint compound in the occupational setting and they did a -4 they looked at a range, they looked at ready mix and dry mix. 5 Theres obviously going to be more exposure if you have to do 6 the mixing of the joint compound. And they looked at different

7 kinds of sanding, I think cold sanding versus hand sanding, so 8 how are you smoothing off the joint compound after its 9 applied. 10 And in doing that analysis they report a range of

11 exposure, again the occupational setting, from 2.1 fibers per 12 milliliter over an eight hour -- eight hour -- time weighted 13 average over an eight hour period, up to 4.5 fibers per 14 milliliter. 15 Q 16 A Okay. And then, again, thats the occupational setting so we, So that was one source.

17 you know, we understand Bondex primarily supplied 18 do-it-yourselfers so we looked for data on whether the exposure 19 would have been different for a do-it-yourselfer and we found 20 the CPSC, the regulatory, I guess regulatory paper. When

21 theyre trying to get -- theyre trying to get regulation 22 introduced and I think its the 1977 to ban asbestos in 23 consumer joint compound, joint compound that is used at home, 24 and they in that study report intensity to exposure of ten 25 fibers per milliliter on average and they say but intermittent

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Martin - Direct/Evert 1 exposure meaning you could double that so lets call it 20 2 fibers per milliliter. 3 calculation. 4 Q Okay.

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So we used that whole range to do our

So the -- on the one hand on the time side you used

5 the range of five pounds for eight hours to 125 pounds for 6 eight hours, right? 7 A Is that right? We

We didnt actually do the calculation with 125 pounds.

8 assumed theres no way they could go that fast, we just did the 9 five pounds. 10 Q 11 A Okay. -- were just doing the worst possible case. Were just And were just --

12 using the five pounds and then I think we used twelve and a 13 half pounds as a sensitivity test. 14 Q And on the time weighted average exposure side you used

15 2.1 from the Verma study you said to the CPSC of 20, is that 16 right? 17 A 18 Q Thats right. And what conclusion did that -- well, and I guess first of

19 all I should ask, how did you convert the Nicholson incidents 20 into dose or how did you come up with the denominator? 21 A Nicholson has all the pieces in his paper, hes the

22 seminal article in 1982 and it contains all of the pieces of 23 information you need to calculate dose. It has the -- all the

24 industries in which he finds that theres asbestos exposure, 25 the number of people in those industries, the duration of their

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1 exposure, and then the intensity of that exposure, he measures 2 everything relative to insulators which he measures at 15 3 fibers per milliliter their exposure level and that allows us 4 to get the exposure, the dose for all of the other industries. 5 Q Okay. So that gave you a numerator and denominator, is

6 that right? 7 A 8 Q Thats right, once again, yes. And so what was your conclusion in regard to the Bondex

9 contribution to dose in the Nicholson group? 10 A Its really small. At the low end we estimated it was .08

11 percent to eight one-hundredths of one percent of the dose out 12 there could potentially have been contributed by Bondex. At

13 the high end making these very extreme assumptions about how 14 long it would take and how intensively exposed a drywaller 15 would be, we estimate its .77 percent so eight-tenths of one 16 percents. 17 18 here. But again, were finding very consistent results Its not that dose really makes a difference. Taking

19 into account dose we still find Bondexs share of exposure is 20 extremely small. 21 Q So did that change or modify your original view that the

22 future forecast of Doctors Peterson and Vasquez in terms of 23 future claims against Bondex were inconsistent at least with 24 your findings in regard to market share? 25 A No. I mean it reinforced those conclusions. Its very

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Martin - Direct/Evert 1 hard to understand from a statistical perspective how its

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2 possible that a company that had such a small share, no matter 3 how you measure it, measure it in pounds, measure it in fibers, 4 measure it in dose, could have somehow come into contact with 5 such a large proportion of the expected future meso incidences 6 from any source. 7 Q Dr. Martin, did you prepare a demonstrative aid that you

8 wanted to try to use to help the Court understand your 9 testimony? 10 A 11 Q 12 13 screen? 14 15 Q 16 A MR. EVERT: Were trying. Were working on it. Yeah, I took a crack at it. This is Demonstrative 8. UNIDENTIFIED SPEAKER: Can we bring that up on the

Dr. Martin, tell us what youre trying to illustrate here. So what do we know? We know that Dr. Nicholson has

17 projected -- theres about 36,000 meso incidences left to be 18 developed. In the future were going to see 36,000 new cases

19 of mesothelioma. 20 Dr. Vasquezs report indicates that about 14,000 of So 14,000 of

21 those are going to be compensable by Bondex.

22 those somehow would have come in contact with Bondex product. 23 Thats what the pie on the left is trying to show you is that 24 relationship. So its 35, 40 percent of all the future

25 instances are assumed to sort of have Bondex implicated.

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Martin - Direct/Evert 1 The right-hand side were looking at the -- at how

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2 much joint compound they produced and there is something like 3 25 billion pound in the market as a whole over this period, 4 Bondex we estimated was 133 million pounds. 5 proportions are really very different. 6 But sort of the question were trying to ask is So those

7 theres 36,000 future meso incidences that are going to 8 develop. Whats the odds that 40 percent of those would have You know

9 gone to the store and picked up a bag of Bondex?

10 Bondex is one percent, less than one percent of the market. 11 What are the odds that 40 percent of the people who are going 12 to develop meso in the future would have used Bondex product? 13 And just statistically could it line up that way? Right. Bondex made more than 14,000 bags of, But statistically

14 Sure, it could.

15 you know, product, joint compound product. 16 would I expect that relationship? No.

It would be really

17 weird for 40 percent of these people to somehow wind up using 18 Bondex product when its such a small player no matter how you 19 measure it. 20 Q Well that was going to be my question. I mean didnt I mean so

21 Bondex make more than 14,000 bags of joint compound? 22 -23 A Yeah, yeah.

I mean so thats, I think thats part of the

24 problem here is you have to consider could it be that every one 25 of those people happened to pick up Bondex? I mean it could be

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Martin - Direct/Evert 1 but is it likely? No, I think it -- this -- I think this

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2 analysis shows, all the analysis weve done shows its highly 3 statistically unlikely that the bags would be arrayed that way, 4 that it would be possible for 40 percent of the people who 5 develop meso to have happened to have picked up the product of 6 a very small, very small player. 7 Q Are you aware, Dr. Martin, that individual mesothelioma

8 claimants numbering somewhere between -- around 8500 individual 9 mesothelioma claimants have historically filed complaints 10 against Bondex in the tort litigation? 11 A 12 Q 13 A Yes. Is that consistent with your market share finding here? I think its inconsistent for exactly the same reasons. It gets more inconsistent.

14 Its sort of lesser inconsistent.

15 I think the forecasts are more inconsistent than the historical 16 data. The gap has widened over time. The number of meso

17 claims being filed against Bondex has increased dramatically in 18 the 2000's and those -- thats whats being built into the 19 forecast. And so the historical data is in my mind also

20 inconsistent although not as inconsistent as the projections 21 are. 22 Q So from a statistical perspective what sort of claiming

23 pattern would be consistent with your analysis? 24 A I mean, you know, I havent tried to study the claims data

25 here, but given Bondexs market share I could imagine 25 or 50

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Martin - Direct/Evert 1 claims a year, you know, much more like what the company was

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2 getting in the 1990's than what it was getting -- the 1,000 or 3 more meso claims that its getting in the 2000's. 4 Q Oh, sure. Mr. Gordon makes a good point. Dr. Martin, if

5 I could ask you to turn to Exhibit 5 of your report. 6 MR. EVERT: Your Honor, this is Demonstrative 6 I

7 think it was which is Dr. Martins initial report. 8 Q And Mr. Gordon points out that there was some discussion

9 earlier about sales and I want to make sure were on the same 10 page here. 11 A What is Exhibit 5 to your report?

Its the table where were estimating from the companys

12 historical overall sales what would be their joint compound 13 sales. 14 Q 15 A 16 Q And these are in dollars? Yes. So these are your, just to be sure Im clear, this is your

17 estimate of the dollars of Bondex joint compound sales from 18 1950 to 1985? 19 A 20 Q 21 Yes. Okay. MR. EVERT: You want me to put it into evidence?

22 Your Honor, because of all the discussion about joint compound 23 sales earlier Id like to admit this one page into evidence of 24 the report or offer it based on the opinion and foundation of 25 Dr. Martin.

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Martin - Cross/Dorsey 1 2 3 THE COURT: Any objection? No objection, Your Honor. Exhibit 5 to Demonstrative

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UNIDENTIFIED SPEAKER: THE COURT: All right.

4 Exhibit 6, Debtors Demonstrative Exhibit 6, is admitted. 5 6 7 MR. EVERT: THE COURT: MR. EVERT: Thank you, Your Honor. Okay. One -No further

Thank you, Dr. Martin.

8 questions but Im sure my colleagues will have some. 9 10 11 BY MR. DORSEY: 12 Q Dr. Martin, your market share analysis doesnt tell us THE COURT: Whos going to begin? CROSS EXAMINATION

13 anything about how many people were actually exposed to 14 Bondexs products does it? 15 A No, I havent tried to estimate how many people might have

16 used Bondex product, thats right. 17 Q And you have no idea how many actually used Bondexs

18 product do you? 19 A 20 Q No. And I believe I just heard you testify that Bondex only Is that correct? I

21 made 14,000 bags of joint compound? 22 A

No, I was saying I know it made at least that many.

23 know it made more than that. 24 Q Okay. Because you actually estimated that they made --

25 that they sold 133 million pounds of joint compound, is that

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Martin - Cross/Dorsey 1 correct? 2 A 3 Q Yes. Okay.

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And you said that they sold these in different size

4 bags, five pound bags, 25 pound bags, one pound bags, correct? 5 A I dont know about one pound bags but surely five pound

6 bags, 25 pound bags, gallons, other. 7 Q Okay. And if we assume for a moment that every one of the

8 bags that they sold was a 25 pound bag at 133 million pounds, 9 that would be more like 5.3 million bags of joint compound, 10 correct? 11 A 12 Q That sounds, that sounds right. Okay. And if we assume -- and we actually know however

13 from your report that the majority of joint compound sold by 14 the debtors was in five pound bags, correct? 15 A 16 Q Yes, I believe thats right. So if we assume that the majority means -- minimal

17 majority, 51 percent, lets assume that, okay -- was sold in 18 five pound bags, if we take 51 percent of 133 million pounds 19 how many pounds would that be of five pound bag joint compound? 20 A Thats 65 million pounds divided by five, its 12'ish, 13

21 million. 22 Q Yes. It would be about 13,566,000. Does that sound

23 right? 24 A Yeah. And I think we -- we talked about this in my I think you cant do that calculation because I

25 deposition.

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Martin - Cross/Dorsey 1 think that those are in -- the percentage comes from a units 2 rather than pounds but -- but I would agree that there is

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3 millions of -- there is millions of -- there were millions of 4 pounds of joint compound, Bondex joint compound sold. 5 I said that in my deposition. 6 7 Q 8 A 9 Q UNIDENTIFIED SPEAKER: Bags of joint compound. Sorry. Millions of bags of joint compound sold. Right. Bags. I think

Well lets take a look at your rebuttal report if you

10 would please that was marked as one of the demonstrative 11 exhibits. And if you would turn to Page 2 of your report

12 please, Footnote Number 2. 13 14 15 16 Q 17 A 18 Q THE COURT: MR. DORSEY: THE COURT: This is Demonstrative 7? Yes, Your Honor. All right.

Do you have that, Doctor? I do. Okay. Footnote 4 you said, data from available sales

19 records 1978 to 1979 indicate that the majority of Bondex joint 20 compound units sold were in five pound containers, correct? 21 A 22 Q Right. Is there any other way to read that than that the majority

23 of the joint compound that the debtors sold was in five pound 24 bags? 25 A No, I think thats right.

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Martin - Cross/Dorsey 1 Q So we know that based on your estimate of the total 133

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2 million pounds and that 51 percent of those at least were five 3 pound bags, that the debtors produced over 13 million five 4 pound bags of joint compound. 5 A No, I think thats not right. I think its because of the

6 pounds issue.

I think -- and again I would acknowledge that

7 theres millions of bags of Bondex joint compound being sold, 8 but the calculation youre doing I dont think is right. 9 the 25 pound bags take up a lot of the poundage. The 133 Its

10 million is in pounds and the larger bags take up more of those 11 pounds. 12 So I think its right that while the number of --

13 half of the units were in five pound bags, I dont think its 14 the case that half of the pounds were in five pound bags if 15 that makes sense. 16 Q So youre saying it would be something less than 13

17 million pounds of five pound bags? 18 A 19 Q Yeah, I think so. Instead of 14,000 bags of joint compound its more like 14

20 million bags of joint compound that the debtors produced, isnt 21 it? 22 A I dont think it will be that many, but I think it could

23 be, you know, in that range, ten million bags. 24 Q Okay. And for every bag of joint compound that was sold

25 more than one person would have been exposed to that joint

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Martin - Cross/Dorsey 1 compound bag, correct? 2 A 3 Q I dont know one way or the other about that. Well if people are using these in their homes, correct?

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4 Thats what theyve testified to that this was for home use, 5 correct? 6 A Yes, I think Bondex was primarily used in the

7 do-it-yourself home market. 8 Q So if someone went down to the hardware store and bought a

9 bag of Bondex joint compound and brought it home and they were 10 married and had two children and their friends from across the 11 street came over to help them with their project and their 12 uncle came in to help them with the project, thats a number of 13 people who got exposed to that joint compound, correct? 14 A I would think that could happen. It could also happen

15 that he put it up by himself. 16 Q But you dont know because you didnt do that calculation

17 did you? 18 A No, I really -- I didnt need to do that calculation to

19 reach the conclusions, the opinions that Im offering here. 20 Q Well if we assume for the moment that at least four people

21 were exposed to each bag of joint compound that was used by -22 that was produced by the debtors, okay, and you said it was at 23 least ten million bags of joint compound they produced, thats 24 40 million people exposed to joint compound made by Bondex, 25 right?

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Martin - Cross/Dorsey 1 A In your hypothetical I think thats right. So 40 (sic)

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2 people had sort of a teeny tiny Bondex dose. 3 Q And isnt it correct, Doctor, that one of the ways to

4 estimate the number of people, or excuse me, the amount of 5 potential liability that a defendant would have in the tort 6 system is to find out how many people were actually exposed to 7 the product? 8 A I think that can be an input. I think its -- although I

9 think its important also to know what the other sources of 10 potential exposures are if theres -- for every pound -- for 11 every bag sold by Bondex we know there is, I dont know, 60 12 bags sold by U.S.G. and 40 bags sold by Georgia Pacific and 14 13 bags sold by National Gypsum. 14 So I think to do the analysis here we need to

15 understand, you know, whats the proportional contribution of 16 Bondex and is it possible that that proportional contribution 17 could lead to the large proportion of claims that its getting? 18 Thats really the analysis that Im doing. 19 Q Well those larger producers of joint compound that you

20 just referred to, they usually sold mostly into the commercial 21 market, correct? 22 A I think it might be right that a lot of their product went

23 to the commercial market although all of them, my understanding 24 is they all were participants in the do-it-yourself market. I

25 wouldnt expect Bondexs share to be higher in the, you know,

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1 in the do-it-yourself market than in the, you know, market more 2 broadly or significantly higher. 3 Q But you dont know that because you didnt do that

4 calculation did you? 5 A I didnt do that calculation. My assignment had been to But as I

6 estimate Bondexs share of the joint compound market. 7 said I did consider its -- whether its share in the 8 do-it-yourself market would be different. 9

And because all of these big players, they have an

10 economic incentive to provide joint compound to the hardware 11 stores too, theyre making it, they may as well be players at 12 -- in all of the markets and my understanding is there is 13 historical evidence that they did. 14 in the do-it-yourself market. 15 So I wouldnt expect that Bondex was somehow a big, They were also big players

16 big player in the do-it-yourself market where it wasnt a big 17 player in the commercial market. 18 Q Well whats your evidence that U.S. Gypsum participated in

19 the do-it-yourself market and how much of the do-it-yourself 20 market they occupied? 21 A I have seen -- Im trying to think of the nature of the

22 documents -- I have seen documents I believe on merchandising 23 documents from U.S.G. going back in time where they talk about 24 how do you sell the different, you know, how do you sell to the 25 construction market and then what do you do when youre trying

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Martin - Cross/Dorsey 1 to sell product to a do-it-yourselfer.

193

I think that was U.S.G.

2 So they sort of -- there is evidence that they are marketing to 3 both kinds of users. 4 I have seen I think advertisements maybe for Georgia I think there was

5 Pacific in the do-it-yourself space.

6 testimony at the time that the CS -- CPSC ban was being 7 proposed about, and I cant remember which manufacturers now, 8 but one of the other big manufacturers had been a -- was 9 participating, they were acknowledging their participation in 10 the do-it-yourself market. 11 So there really is -- economically Id expect them to

12 participate in that market and there is evidence from the 13 historical record that supports that. 14 Q But you didnt look at any of that information in

15 connection with your report in this case did you, Doctor? 16 A Oh, I had looked at that. I had looked at the -- those

17 historical records.

I mean, again, I wasnt trying to estimate

18 the share of the do-it-yourself market particularly, I was 19 trying to estimate their share of the joint compound market, 20 that was my assignment. 21 Q But I looked at --

You looked at all the things that you just listed out in

22 connection with preparing your report in this case, Doctor? 23 A I dont -- I think I -- I dont know. I havent seen all

24 of them.

I have certainly seen some of them in, yeah, in

25 connection.

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Martin - Cross/Dorsey 1 Q Did you produce it to us in connection with your expert

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2 report in this case? 3 A 4 Q 5 A No -Because I have never seen it, Doctor? Im sorry. Im sorry. I wasnt relying on it in the

6 sense that I wasnt trying to estimate the joint -- Bondexs 7 share of the do-it-yourself market, I was estimating its share 8 of the overall joint compound market. 9 Q So you reviewed something that you rejected in connection

10 with your opinion, but you didnt produce it to us in 11 connection with your report, is that correct? 12 MR. EVERT: Your Honor, I object to this line of

13 questioning. 14 -15 16

The question is was it something she relied upon

COURTROOM DEPUTY: MR. EVERT:

I cant hear you, Mr. Evert. The question is, is it Thats

Im sorry.

17 something she relied upon in rendering her opinion. 18 inappropriate question. 19 20 Honor. MR. DORSEY:

That is not what the rule says, Your

The rule says an expert witness has to provide all the

21 materials that they considered, not what they relied upon, what 22 they considered in connection with their report. If she

23 considered this material and didnt produce it to us she cannot 24 sit here on the stand and talk about it today. 25 THE COURT: What rule?

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Martin - Cross/Dorsey 1 2 MR. DORSEY: MR. EVERT: That would be Rule 26, Your Honor. Your Honor, I think its as simple as

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3 asking the witness whether she considered it in rendering her 4 opinion. 5 THE COURT: I agree. Thats probably the simple way

6 to go about it. 7 Q 8 A

So maybe we should lay the foundation.

Did you consider it in rendering your opinion, Doctor? I didnt. I didnt, no, I didnt use this information in

9 forming the opinions that are in my report. 10 Q And thats why you have absolutely no idea how much of the

11 do-it-yourself market Bondex had versus the other players in 12 the market, correct? 13 A 14 Q 15 A No, I would disagree with that. I --

Whats the basis for your opinion, Doctor? Again, as an economist I -- it would be my expectation

16 that a company that was producing joint compound for the 17 commercial market would also produce it for the do-it-yourself 18 market. There is just no reason why you wouldnt want to be

19 playing in both of those markets and -20 Q 21 idea. 22 A No, and from -- Im telling you that from the economics We see it all the time. The Youre just guessing arent you, Doctor? You have no

23 standpoint that makes sense.

24 companies providing product in a commercial setting also 25 provide that product at the hardware store. Ive --

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Martin - Cross/Dorsey 1 Q

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But were not here to talk about what makes sense to you

2 in your mind as an economist, were here to talk about the 3 facts and you have no facts that support your contention that 4 Bondex had a small share of the DIY market do you? 5 A I guess Id just give the same answer that I gave before.

6 The fact that it has a small share in the overall market and my 7 expectation that the players in the larger -- in the commercial 8 market would also be participants in the do-it-yourself market 9 leads me to the conclusion or the syllogism that Bondex also 10 had a small share of the do-it-yourself market. 11 Q Okay. You didnt answer my question, Doctor. My

12 question, Doctor, was what facts do you have that support your 13 contention that Bondex had the same small amount of market 14 share in the DIY market as it did in the overall joint compound 15 market? 16 A I cant -- refer to those documents I referred to before.

17 Those are part of the basis for my opinion are the documents 18 that I had seen and -19 Q 20 A So you did rely on those documents? Well Im not offering an -- I didnt offer an opinion But youre asking me now do I have an opinion

21 about that.

22 about that and I do and the opinion I have now is its also 23 small and the reason that I can conclude that is because Ive 24 seen -- the factual basis is because I have an economist 25 training that tells me it makes, but also that I have seen

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Martin - Cross/Dorsey 1 these other documents that reference U.S.G. and G.P. and the 2 others participating in the do-it-yourself market. 3

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So its not, again, thats not part of my opinion in

4 the -- in my report, but youre asking about it now and the 5 basis for that opinion is certainly factual. 6 MR. DORSEY: Your Honor, I move to strike the

7 testimony about the DIY market. 8 9 you asked. 10 THE COURT: No, you asked. She answered the question

The testimony is not stricken. MR. DORSEY: Well, Your Honor, because we didnt get

11 the documentation.

I asked her in her deposition whether or

12 not she had an opinion about the size of the DIY market and she 13 said she didnt. 14 THE COURT: Well then you can use that if thats the

15 case and, you know, establish that she lacks credibility in one 16 of those two places. 17 your question. But her testimony today is in response to

Shes essentially saying youre asking her for

18 a different opinion than she gave -- than she was asked to give 19 in her report. So if youve got something that shows she made But that motion

20 a contrary statement at another time, use it. 21 to strike is denied. 22 23 Q MR. DORSEY: Thank you, Your Honor.

Going back to what my original question was, Doctor, about

24 that led to this -- led us down this path was that I asked you 25 whether or not you would agree that in mass tort cases a

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1 considerable amount of time is usually spent on determining how 2 many people were actually exposed to the product at issue, 3 correct? 4 A I would agree that that can be, yes, one input into a

5 forecast, for example. 6 Q And in fact you wrote a book about that didnt you,

7 Doctor? 8 A I wrote a book on forecasting claims in a product

9 liability mass tort setting, yes. 10 Q And in that book you indicate that one of the things you

11 needed to do in estimating mass torts is determine first of all 12 the universe of people who were exposed to that product, 13 correct? 14 A Again, I think that can be, yes, one input into developing

15 a forecast. 16 Q 17 A And again you did not do that in this case, correct? I didnt develop a forecast in this case. In this case I

18 was asked to consider the forecast put forth by other experts 19 in light of the market share analysis that I had done. 20 Mullin is putting forth a forecast for the debtor. 21 doing that here. Dr.

Im not

I think my analysis is consistent with his,

22 but Im not here as a forecasting expert. 23 Q 24 A 25 Q But you have done forecasts before have you not? Sure. And youve done forecasts in the asbestos context,

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Martin - Cross/Dorsey 1 correct? 2 A 3 4 Q 5 A 6 Q Yes. THE COURT: Im sorry. I couldnt hear you.

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Youve done forecasts in the asbestos context, correct? Yes. And you are familiar with how the tort system works in

7 connection with asbestos cases, correct? 8 A Thats a pretty broad question. I think you have to be

9 more specific for me to answer it. 10 Q Well you provide estimates on behalf of companies who are

11 making their SEC filings, correct? 12 A 13 Q 14 A 15 Q Yes. On their asbestos liabilities? Yes. And a part of that is looking at what their history is in

16 the tort system in connection with providing those estimates, 17 correct? 18 A 19 Q Sure, thats a part of it. And you understand based on your experience in the tort

20 system that the only known cause of mesothelioma is exposure to 21 asbestos, correct? 22 A I think thats the only identified cause. Theres a

23 debate about how much of the meso out there is caused by 24 asbestos versus background, but I think thats right, there is 25 no other known identified cause.

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Martin - Cross/Dorsey 1 Q Okay.

200

And people either have mesothelioma or they dont

2 and theres no in between, right? 3 A I think -- I mean that should be true medically. I think

4 theres some, theres been some discussion about misdiagnoses 5 about sort of an over-diagnoses, calling some diseases meso 6 that are not meso but -- but I would say medically it should be 7 right that there is -- you either have it or you dont. 8 Q And if someone gets mesothelioma theyre going to die from

9 that disease, correct? 10 A 11 Q Yes, thats my understanding. And given that Bondex weve established sold millions of

12 bags of joint compound into the consumer market, does it 13 surprise you at all that if one of those people who went down 14 and bought one of those millions of bags of joint compound 15 developed mesothelioma after, you know, sometime in the future 16 after they bought it, that they wouldnt want to look to Bondex 17 to get compensated for their injury? 18 A Im not sure that I have an opinion about that. I mean

19 the way forecasting is done is you look at the dose contributed 20 by a product and say how many, you know, whats the -- its not 21 person specific in that sense. You look at the dose and then

22 you say whats the probability that someones -- of the group 23 of people who are exposed are going to get meso. 24 Q Its not --

Well does it surprise you, Doctor, that if someone who

25 used Bondex joint compound that contained asbestos and they

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1 develop mesothelioma that they would file a claim against the 2 debtors for their mesothelioma? 3 Doctor? 4 A I mean I guess I dont have an opinion about that one way I dont know if thats their -- the primary Is that surprising to you,

5 or the other.

6 source of their exposure where they -- were they occupationally 7 exposed? If that was the only source of their exposure Id be

8 very surprised if they would, I mean just from a dose 9 perspective, that they would develop meso from they bought a 10 single bag of Bondex down at the hardware store. But again,

11 Im not here to offer an opinion about any individual. 12 Q Well Im asking you your opinion, Doctor, about -- or

13 whether -- Im asking you whether you were surprised was my 14 question. Are you surprised that if someone went down to the

15 hardware store back in 1972 and bought two or three bags of 16 Bondex joint compound and went home and used it, and maybe they 17 worked in the shipping industry, maybe they worked as an 18 insulator, maybe they worked in some other places where they 19 were exposed to Bondex or exposed to asbestos, that that person 20 when they developed their mesothelioma wouldnt want to look to 21 every single source of asbestos that they were exposed to for 22 compensation? 23 A I mean I guess, no, I dont find -- I wouldnt find that

24 surprising if they could remember that they had gone down to 25 the hardware store and picked up, out of all of the joint

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1 compound there picked up two or three bags of Bondex, I guess I 2 wouldnt be surprised that they would name Bondex. 3 Q And the reason they want to do that partly is because if

4 they didnt name Bondex and it came out that Bondex was one of 5 the products that they were exposed to, the other defendants 6 would say it wasnt us, it was Bondex exposure that caused 7 their mesothelioma, isnt that right? 8 A 9 Q Maybe. Okay. I dont have an opinion about that. And once -- if Bondex had an argument that well

10 even though this person may have been exposed to our product 11 their dose was not sufficient to cause them to develop 12 mesothelioma, thats something that they could raise as a 13 defense in the tort system, correct? 14 A 15 Q Yes, I believe thats right. And thats exactly what happened here, right? The

16 defendant had the opportunity, the debtors had the opportunity 17 in the tort system to raise whatever defenses they wanted 18 including that the dose that the person received from Bondex 19 wasnt sufficient to cause their mesothelioma. 20 A Again, I havent studied Bondexs litigation history. I am I

21 dont -- Im not here to offer an opinion about that.

22 here to offer an opinion that the number of mesos that they got 23 is inconsistent in my view with the dose that they contributed 24 to the market. 25 Q Well again, Doctor, you said you werent surprised that if

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1 someone was exposed to Bondex and they developed mesothelioma 2 they wouldnt look to mesothelioma for compensation regardless 3 of what the dose was, right? 4 A Not for an individual. But I am surprised at the

5 magnitude of the people who are projected to come forward. 6 That of the 36,000 people who are going to get meso from every 7 source out there, all the occupational exposures out there, I 8 am surprised that 14,000 of them would say I went to the 9 hardware store and picked up Bondex when its got less than, 10 you know, half a percent or however you measure it a very small 11 percent of that market. 12 find that surprising. 13 Q Even though they sold up to ten million bags of I would find that surprising. I do

14 asbestos-containing joint compound? 15 A Again, if they sold ten million bags, U.S.G. sold, you

16 know, 30 times that amount and National Gypsum sold 20 times 17 that amount. I mean there is -- I agree ten million is a big And so

18 number, but theres a lot of joint compound out there.

19 when Im considering the claims that are going to come forward 20 I have to think whats the likelihood that those people are 21 going to -- have picked up Bondex? 22 percent. 23 I mean is it possible? Theres enough bags out there In my And its small, its not 40

24 so its possible. 25 opinion its not.

But is it statistically likely?

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Martin - Cross/Dorsey 1 Q And youre aware that debtors had more than 9,000

204

2 mesothelioma claims filed against them prior to filing for 3 bankruptcy, correct? 4 A 5 Q 6 A 7 Q Yes. And they settled about 3500 of those claims? Yes, thats my understanding. Yet by your calculation there should have only been 114

8 to 1105 meso claims filed against them prior to filing 9 bankruptcy? 10 A I think we talked about this in my deposition. I mean I

11 want to be careful that Im talking about incidences versus 12 claims and Im scaling the Nicholson incidents by the Bondex 13 dose. 14 So that 114 to 1105 incidences is -- its a Could the number be something north of that? I

15 calculation.

16 think it could be for the reason youre talking about, more 17 than one person could have been exposed, that kind of thing. 18 Could it be 15 times that? No. I mean in my opinion theres

19 just no -- it doesnt make statistical sense that it would be 20 that big. 21 Q But you didnt attempt to explain why there was a

22 difference between the number of claims that they received 23 pre-petition and the number of incidences that you thought 24 would be attributable to Bondex exposure? 25 A No, that wasnt -- that was Dr. Mullins assignment, my --

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Martin - Cross/Dorsey 1 that wasnt part of my assignment.

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My assignment was just to

2 look at the market share and the claims in light of that. 3 Q And that 114 to 1105 incidences of mesothelioma that you

4 estimate would occur, thats assuming exposure only to Bondex, 5 correct? 6 A Yes, I think its right that if all of that -- if the only

7 doses people got was from Bondex I expect between 114 and 1105 8 mesos to develop over all time. 9 Q And that doesnt take into account then the cumulative

10 effect of exposure to asbestos, correct? 11 A 12 Q Im not sure what you mean by that. Well someone might have used Bondex, they might have used

13 a U.S. Gypsum joint compound, they might have worked in a place 14 that had asbestos. 15 A 16 Q 17 A Yeah, no. Right. -- certainly that could have been the case and thats No, certainly --

18 really what my testimony is about is -- these 36,000 people, I 19 mean Nicholsons been pretty right about the number of mesos 20 that have developed in the population so far and so presumably 21 his 36,000 future mesos is accurate. 22 He estimates they got that from their occupational

23 exposure, not from their, you know, do-it-yourself usage, they 24 got that from being exposed in the market. 25 those people have also used Bondex? So could some of

Sure, and they could get

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Martin - Cross/Dorsey 1 meso, sure. Could 40 percent of them have also used Bondex?

206

2 Thats where Im calling the analysis into question or the tort 3 system into question. It seems like its -- its way out of

4 whack with what wed expect based on how much of the product 5 they supplied. 6 Q 7 A 8 Q Calling the did you say the tort system into question? Yeah, I mean -- yeah. You mentioned on your direct examination that Nicholson

9 was the seminal study in the area of incidences of 10 mesothelioma? 11 A I think its right. I think it was -- it was done early,

12 it was done in 1982 and I think that there was some debate in 13 the, you know, 90s about whether it was accurate or not and I 14 think over the course of time its held up quite well. The

15 meso he projected have been quite close to the mesos that have 16 actually occurred. 17 Q And youre aware that Dr. Vasquez actually worked on that

18 study? 19 A 20 Q Yes. Okay. Do you have any reason to believe, Doctor, that the

21 claimants who filed claims against Bondex pre-petition did not 22 in fact have exposure to Bondex product? 23 A Yes, in my opinion its statistically unlikely that that

24 many would have had exposure to Bondex. 25 Q So your belief is that those people who have said that

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Martin - Cross/Dorsey 1 they were exposed to Bondex product were lying? 2 A I dont want to say that theyre lying. I dont -- I

207

3 havent study the individual claims here and I dont know. 4 think its hard to remember, you know, back in 1950 or 1960 5 when I went to the store what brand did I pick up. I think

6 its hard to know so I mean I could imagine theyre mistaken. 7 I dont know that people are lying. I mean I know people are

8 sick, but I -- Im just calling into question on an aggregate 9 level whether that many people, given all the joint compound 10 choices out there, that many people who have developed meso 11 could have picked up a bag of Bondex. 12 Q And thats something that can be addressed in the tort

13 system, correct, by the defendants raising an issue with the 14 particular claimant saying we dont think you had exposure to 15 our product? 16 A And I think thats -- I mean, again, Im not testifying

17 for Dr. Mullin, but I think thats his analysis is to say that 18 sometimes it makes sense, many times it makes sense to not 19 fight that battle, its too expensive, you know, you cant -20 you think you can get -- you can probably get out of a lot of 21 these if you are willing to spend the money, but it makes more 22 economic sense just to pay the claims rather than to incur all 23 of the defense costs. 24 Q In doing your calculation on market share, Doctor, you

25 looked at the asbestos-containing joint compounds of the

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Martin - Cross/Dorsey 1 debtor, is that correct? 2 A

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I -- we talked about this in my deposition too -- I looked

3 at all of the joint compound produced by Bondex and all of the 4 joint compound -- I estimated all of the joint compound 5 produced in the U.S. as a whole. I didnt try to distinguish

6 between asbestos-containing and non-asbestos-containing. 7 Q And you recall in your deposition you told me that you

8 looked only at Bondexs asbestos-containing joint compounds, 9 correct? 10 A My understanding is that, and I may be wrong about this,

11 my understanding is that Bondex only made asbestos-containing 12 joint compound and I think my reading on the subject leads me 13 to believe that most of the joint compound made by others was 14 also asbestos-containing. 15 Q 16 A But you dont know for sure? But I -- well I -- if it were the case that lots of the

17 joint compound out there, the non-Bondex joint compound out 18 there were not asbestos-containing, I would have expected I 19 would have gotten a different answer when I did that asbestos 20 fiber usage comparison, you know, how much of the asbestos 21 fiber did they use or how much of the dose did they contribute 22 compared to how much did they sell, but Im not finding that. 23 Im finding in both cases, in all three cases that

24 amount of joint compound and the amount of asbestos, the dose 25 contributed by Bondex is really very, very small. So Im not

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Martin - Cross/Finch 1 finding the kind of inconsistency that I would expect if 2 youre, if what youre suggesting is true and theres lot of 3 non-asbestos-containing joint compound out there. 4 MR. DORSEY: Excuse me, Your Honor, one second.

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If I

5 could have just one second, Your Honor, I may be finished. 6 7 8 9 10 11 BY MR. FINCH: 12 Q Dr. Martin, let me see if I understand some things. You THE COURT: MR. DORSEY: THE COURT: MR. FINCH: All right. No further questions, Your Honor. Mr. Finch. Yes, Your Honor. CROSS EXAMINATION

13 estimated the market share of Bondex joint compound based on 14 past sales data, right? 15 A 16 Q Yes. Okay. And I believe you said you werent trying, you

17 didnt come up with any estimate of how many people might have 18 at some point in their lives worked with Bondex joint compound. 19 You didnt do anything like that, right? 20 A 21 Q Thats right. Okay. Would you agree with me that Coke and Pepsi are two

22 of the dominant soft drink manufacturers in the United States? 23 A 24 Q Yes. If you did the market share of Coke and the market share

25 of Pepsi, Pepsi might be 30 percent and Coke might be 35

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Martin - Cross/Finch 1 percent or something like that, right? 2 A 3 Q 4 A 5 Q Okay. Ill assume that with you.

210

That sounds reason (sic), right? It would probably be, yeah. Okay. And Canada Dry Ginger Ale might be one percent,

6 right? 7 A 8 Q It could be. Okay. I dont know. Isnt it true that the

Assume its one percent.

9 question youre asked is how many people at any point in their 10 life have drunk Canada Dry Ginger Ale, knowing what Coke and 11 Pepsis market share is doesnt tell you anything about the 12 answer to the question of how many people ever drunk a Canada 13 Dry. 14 A 15 Q No, I would disagree with that. Well it doesnt -- are you telling me that just because

16 Coke has 30 percent of the market share of soft drinks that 17 that tells you anything about how many different people in the 18 United States ever in their lives drunk a Canada Dry? 19 A I think it goes to the probability they would have picked

20 a Canada Dry versus a Coke. 21 Q Okay. Well lets talk about probability. The individual

22 case -23 24 25 Q MR. FINCH: THE COURT: Can I approach the witness? Yes.

I want you to assume this is John Smith, okay, and theres

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Martin - Cross/Finch 1 a question -2 3 mic. 4 5 MR. FINCH: Sure. Let the record show, Your COURTROOM DEPUTY:

211

Mr. Finch, you need the walk about

UNIDENTIFIED SPEAKER:

6 Honor, if thats supposed to be a person. 7 8 (Laughter) UNIDENTIFIED SPEAKER: They use an awful artist. I

9 just want to note that for the record. 10 11 Reporter? 12 Q Okay, maam, youre not saying anything about whether or MR. FINCH: Okay. Is this back up, Madam Court

13 not Mr. Smith did or did not get exposed to Bondex asbestos in 14 an individual case. You havent looked at any of the product

15 personal injury questionnaire data and you havent looked at 16 any deposition testimony from the underlying litigations, 17 correct? 18 A No, thats right, Im coming at it from another angle,

19 from an aggregate perspective. 20 Q Okay. And so lets say Mr. Smith testifies that, yeah, I

21 worked with Bondex joint compound in my house for a couple of 22 months. Thats not inconceivable, correct? He could --

23 somebody could testify to that, right? 24 A 25 Q Sure. All right. And lets say he also worked -- Bondex --

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1 worked a lot with U.S.G. joint compound and lets say he also 2 worked with Kaiser Gypsum joint compound, okay, and lets say 3 he also changed some brakes and was exposed to asbestos like 4 that, right, and lets say he also worked around Pittsburgh 5 Corning Unibestos insulation. So hes got a total dose of Thats conceivable,

6 asbestos from all these different things. 7 correct? 8 A 9 Q 10 A 11 Q 12 A 13 Q Yes. All right. Right. Youre not an epidemiologist, right? Right.

Youre not a medical doctor, right?

You have no expert opinion about whether in this

14 situation, an individual person, if they had say one percent of 15 their total dose of asbestos was from Bondex whether or not 16 that exposure was a medical cause of the mesothelioma. You

17 dont have the expertise to answer that question do you? 18 A 19 Q No, thats right, I dont. And you cant point me to a single -- youre not a --

20 youre not an epidemiologist, right? 21 A 22 Q Right. Never conducted a peer reviewed epidemiology study that

23 was published in the literature. 24 A 25 Q Right. You cant point me to a single epidemiology study where

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1 they projected the future incidents of mesothelioma based on a 2 specific brand can you, maam? 3 literature. 4 A Specific brand. I dont think Ive seen that kind of Published in the peer reviewed

5 study, no. 6 Q Okay. And you did -- you talked about the Nicholson

7 paper, right? 8 A 9 Q Right. Youre familiar with Dr. Nicholsons paper, his co-author

10 was a gentleman named Dr. Purcell and also Irving Selikoff, 11 correct? 12 A 13 Q Yes. Irving Selikoff was one of the foremost researchers in

14 asbestos in the United States in the second half of the 15 twentieth century. 16 A 17 Q Are you aware of that?

I think he was prominent, yes. Okay. And Ive got Dr. Nicholsons paper here if you need

18 to refresh your recollection, but isnt it true that the level 19 of exposures that he talked about in that paper from using 20 joint compound on a sort of a single-time basis were comparable 21 to the level of exposure that you see from insulation work? 22 A Im not remembering him specifically with joint compound It could be. May I approach the witness, Your Honor? Yes.

23 dose in there. 24 25

MR. FINCH: THE COURT:

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Martin - Cross/Finch 1 MR. FINCH: Thank you.

214

Can I have the ELMO please?

2 And this has not been marked. 3 a piece of hearsay.

It doesnt come into evidence as

Why dont we mark it ACC Exhibit 1000 for I can hand Your Honor a copy

4 purposes of identification only.

5 but I dont -- I think the ELMO will probably suffice. 6 Q 7 A 8 Q This is the Nicholson study, correct, maam? Yes. And he talks about here the levels of exposure associated

9 with joint compound work and he specifically cites to the Verma 10 and Middleton study from 1980. 11 about. 12 A 13 14 Q 15 A 16 Q 17 A 18 Q Sorry. Where are you? Excuse me. What page? Thats the one that you talked

UNIDENTIFIED SPEAKER: On Page 266. Yes. Okay. Right.

Are you there, maam?

And he talks about Verma and Middleton, correct?

And Verma and Middleton he talks about the fiber levels

19 5.3 fiber milliliters in hand sanding to 47 in dry mixing 20 operations, thats Fischbein, and then Verma and Middleton goes 21 on and talks about between 2.6 to 4.8 fibers milliliter at 22 distances 15 to 25 feet away. 23 A 24 Q Right. And youre not an industrial hygienist, youre not a

25 doctor, you dont know how many asbestos fibers that means

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Martin - Cross/Finch 1 somebody breathes out of five fibers per milliliter level do 2 you, maam? 3 A 4 Q No, I dont know how many fibers that is. So if a doctor would testify thats tens of millions of

215

5 fibers in the course of a couple of days you wouldnt be able 6 to contradict that, right? 7 A 8 Q 9 A 10 Q 11 A 12 Q I mean that wouldnt be my expertise to contradict that. Okay. It may be contradictable but I -Okay. Right. All right. And so those fiber levels two to five. Then But you couldnt do it.

13 you see on the next page summary of average air, asbestos air 14 concentrations during insulation work? 15 A 16 Q Yup. And light and heavy construction. This is again in fibers

17 where you see its like 2.7 to 6.3? 18 A 19 Q Yup. So does that refresh your recollection that the levels of

20 exposure from joint compound are comparable to insulation? 21 That at least as stated in the Nicholson paper. 22 A Actually I mean I see this reference here. The fibers per

23 milliliter that Nicholson actually uses in the calculation for 24 insulation is 15 fibers per milliliter and so thats quite 25 higher than the Verma Middleton study for example of 2.1 to --

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Martin - Cross/Finch 1 I had 2.1 to 4.5, they have it a little different than that. 2 Q

216

So its maybe double but its still -- you dont have any

3 knowledge as to how much asbestos, if any, is in the ambient 4 background air, correct? Youre not an -- you dont have an

5 expert opinion about that as either industrial hygienist or a 6 medical doctor. 7 A I dont have an opinion as an industrial hygienist or a

8 medical doctor, no. 9 Q Okay. And youre aware that Dr. Nicholson -- you said I

10 think it was the seminal study and it was -- its basically 11 been right for the past 30 years, correct? 12 A 13 Q Yes. And one of the occupations that Dr. Nicholson projects

14 will get future incidents of mesothelioma is automobile 15 mechanics, correct? 16 A 17 Q Yes. Automobile mechanics are exposed only to chrysotile I

18 asbestos, thats whats they do is fixing brakes, correct? 19 mean back then -- let me back that up.

Automobile mechanics

20 can be exposed to asbestos from work with brakes, correct? 21 A I believe theres debate about whether theres actual I dont -- I dont have -- again, I dont

22 exposure or not.

23 have an epidemiological opinion or an industrialist opinion 24 about that. 25 Q Okay. And you know that -- are you -- do you -- are you

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Martin - Redirect/Evert

217

1 even aware that brakes in the United States were only made with 2 chrysotile asbestos? 3 A I may have heard that, I dont, yeah, I dont remember

4 particularly. 5 6 Honor. 7 8 THE COURT: MR. EVERT: Mr. Evert. Yes, Your Honor, I just have a short MR. FINCH: I dont have anything further, Your

9 follow-up to clarify a couple of things. 10 11 BY MR. EVERT: 12 Q 13 A 14 15 16 Q Dr. Martin, thank you for your patience. Thank you. MR. FINCH: MR. EVERT: Oh, did I leave that up there? No. REDIRECT EXAMINATION

Dr. Martin, just a couple of questions to clarify a couple The Nicholson study and the numbers that you were just

17 things.

18 looking at that Mr. Finch showed you, is it clear from this 19 article whether or not those are time weighted averages or not? 20 A I believe theyre not time weighted averages. I believe

21 theyre talking about at particular points in time where there 22 may be some intermittent exposure thats as high as the levels 23 that they gave here. 24 Q And for the purposes of your calculations were you -- was

25 it necessary that you used the time weighted average?

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Martin - Redirect/Evert 1 A

218

Yes, and thats standard in the application of dose to try

2 to forecast incidents. 3 Q Dr. Martin, Im going to hand you Debtors Exhibits 27,

4 28, and 29. 5 6 MR. EVERT: THE COURT: If I may approach, Your Honor? Yes. I actually dont need them if

7 youre putting them on the ELMO because I believe I have 8 everything in the binders dont I? 9 10 11 12 Q MR. EVERT: THE COURT: MR. EVERT: You do, Your Honor. Okay. Okay.

So Im going to start with 28, Dr. Martin, which is the

13 July 6th, 1977 letter -14 A 15 Q 16 A 17 Q Right. -- from the Georgia Pacific Corporation? Right. I think if youll look at the last paragraph on this page,

18 the second sentence, we package our spackling compound in both 19 one gallon and five gallon containers, although the smaller 20 size is directed toward the do-it-yourself market. We have no

21 way of policing the sale of our five gallon containers in 22 keeping those out of this market. 23 A 24 Q Yes. Is this the type of document you were referring to that Do you see that?

25 confirmed your economic instinct that these companies would be

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Martin - Redirect/Evert 1 in the do-it-yourself market? 2 A 3 Q Yes, this is one of them. Would you turn please, Dr. Martin, to Exhibit 27?

219

And if

4 you would just describe for me what that appears to be? 5 A Its an instruction booklet or manual put together by

6 Georgia Pacific and it appears to be directed toward people who 7 are using the product as a do-it-yourself project. 8 Q 9 -10 A 11 Q 12 A 13 Q That guy. -- that its do-it-yourself? Right. Are these the kinds of documents that indicated to you You can tell that from the guy with the hat and the pipe

14 that Georgia Pacific was in the do-it-yourself market? 15 A 16 Q Thats right. And finally, Dr. Martin, if you would turn to Exhibit, And if you would describe what that

17 Debtors Exhibit 29?

18 document appears to be? 19 A This is what I -- this is the merchandising one I was

20 referring to where I believe theyre talking about sort of 21 salesmen and how to go about selling products. 22 I believe. 23 Q 24 A 25 Q This is the United States Gypsum Company? Right. And if you would turn to Page 8 -This is U.S.G.

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Martin - Recross/Dorsey 1 A 2 Q Right.

220

-- of the document and youll see referenced small package

3 joint treatment kits for the consumer market. 4 A 5 Q Thats right, yeah, this is what I was thinking of. Again, is this the kind of document that you referred to

6 to confirm your economic analysis that these larger joint 7 compound manufacturers were likely in the do-it-yourself 8 market? 9 A 10 Q 11 have. 12 13 14 15 BY MR. DORSEY: 16 Q Dr. Martin, do Exhibits 27, 28, and 29 tell you anything THE COURT: MR. DORSEY: Mr. Dorsey. Im cleaning up, Your Honor, I promise. RECROSS EXAMINATION Thats right. Thank you, Dr. Martin, those are the only questions I

17 about how much of the do-it-yourself market any one of those 18 three companies had? 19 A 20 Q 21 22 23 24 25 No, theres no volume information on that. Thank you. MR. DORSEY: MR. FINCH: THE COURT: MR. FINCH: Thats all I have, Your Honor. One last question, Your Honor. Mr. Finch. Yes. RECROSS EXAMINATION

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Martin - Recross/Finch 1 BY MR. FINCH: 2 Q

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The economic analysis you just testified to today, youve

3 never testified to that in an individual asbestos personal 4 injury case where Bondex was a defendant and there was a jury 5 in the box and Mr. Evert was -- or anybody like him was 6 defending Bondex and there was a plaintiffs lawyer 7 representing -8 THE COURT: Would you like to -- how many, how many How about one at a time? (Laughter) Let me just simplify it. Youve never testified --

9 clauses, Mr. Finch? 10 11 Q

12 youve never testified in an individual asbestos personal 13 injury case where Bondex was the defendant where it was a jury 14 trial about either economic analysis you presented to date, 15 correct? 16 A 17 Q 18 19 20 21 22 thank you. 23 24 THE WITNESS: MR. FINCH: Thank you. Thats correct. Thank you. MR. EVERT: THE COURT: Your Honor, may the witness be excused? Anyone calling Dr. Martin again? No, Your Honor. Youre excused, Dr. Martin,

UNIDENTIFIED SPEAKER: THE COURT: All right.

Your Honor, may I also be excused for the

25 balance of the day being that I dont believe I have any more

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222 1 witnesses today? 2 3 4 5 6 7 recess. 8 9 MR. EVERT: (Audio off) Thank you, Your Honor. First as a THE COURT: MR. FINCH: THE COURT: MR. EVERT: THE COURT: Yes, Mr. Finch. Thank you. Is this an appropriate time for a recess? Thank you, Your Honor. All right. Yes, it is.

Well take a ten-minute

10 housekeeping matter, Your Honor, we have tendered to the Court 11 Debtors Exhibits 21, 27, 28, and 29 and I believe they are all 12 without objection so we would formally move their admission. 13 14 15 MR. SHEPPARD: THE COURT: No objection, Your Honor. 27, 28, and 29 are admitted.

All right.

MR. SHEPPARD:

And, Your Honor, as a housekeeping

16 matter from the ACC we would move E-113, E-165, E-171. 17 18 19 20 21 22 23 19 in? 24 UNIDENTIFIED SPEAKER: No, but we will. Wed be THE COURT: Wait, Im sorry, E-113? E-113.

MR. SHEPPARD: THE COURT:

Okay. E-165.

MR. SHEPPARD: THE COURT:

All right. E-171, E-426. And did you move Debtor

MR. SHEPPARD:

25 delighted to.

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223 1 2 3 MR. EVERT: Well be glad to. Would you please? If you would add to that list

MR. SHEPPARD: MR. EVERT:

Yeah.

4 Debtor 19, Your Honor, and Debtor 21. 5 6 7 MR. SHEPPARD: THE COURT: MR. EVERT: No objection, Your Honor. Theyre all admitted. Your Honor, we

All right.

Thank you, Your Honor.

8 would next like to publish the deposition of Harry Lafkas 9 (phonetic) who is a United States Gypsum Company salesman and 10 this deposition was taken in the underlying tort litigation and 11 it is relevant to the testimony that Dr. Martin just gave. 12 We have one dispute that I think we need to resolve

13 with the Court first which is the debtors were operating under 14 the assumption that the purpose of a timed trial would be to 15 limit the Courts work in terms of the evidence that would be 16 reviewed by the Court in association with this estimation and 17 as a result we made our deposition designations under the 18 assumption that we would be reading into the record the short 19 deposition designations and it would count against our time. 20 I think the ACC and the FCR were operating under the

21 view that the deposition designations that they tendered which 22 were much more lengthy would be just given to the Court to 23 review at the conclusion of the case. And if thats what were

24 going to do then we need to add a lot more designations in 25 order to counter what they have designated. But our thought

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224 1 was that we would just read them into the record, that way the 2 Court would have a finite record and we would be consistent 3 with the timed nature of the trial. 4 THE COURT: All right. Well my typical practice has

5 been to take the depositions outside court unless you have a 6 witness here for cross examination purposes. However, if

7 youre going to designate the entire deposition transcripts, 8 two things, (i) I refuse to read them in the little four-page 9 blocks. My eyesight is absolutely not good enough. I tried to I

10 read some of them over the weekend and literally I gave up.

11 cannot see them and Im not going to go buy a magnifying glass 12 just to read four-page depositions so I want larger prints and 13 then I am happy to read them. 14 However, the other issue is if youre designating

15 entire depositions youre going to have to make good use of 16 those depositions in your proposed findings of fact and 17 conclusions of law because as you know Im on a short 18 turnaround time for this and I intend to get this opinion done 19 before my retirement. So youre going to have to be very

20 explicit in proposed findings and conclusions of law as to what 21 those transcripts are all about and where theyre relevant. 22 Other than that I dont have a preference. If you

23 choose to proceed by reading them here thats fine, if you 24 prefer to save some of your time for something else and have me 25 read them later Im happy to read them later. If you want to

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225 1 designate additional parts certainly Ill give you time to do 2 that based on this misunderstanding. 3 4 5 MR. EVERT: THE COURT: Thank you, Your Honor. So which way do you want to do it? Your Honor, if I may and I think Mr.

MR. SHEPPARD:

6 Evert summed it up, there was an honest misunderstanding here. 7 And we had offered before that the debtors could certainly 8 designate additional transcripts given their difference of the 9 understanding from ours. 10 I would also suggest, Your Honor, that to the extent

11 we need to redo these, and we obviously will, we will make sure 12 and go back that we are only designating that which is 13 absolutely going to be part of our briefing. 14 15 THE COURT: MR. FINCH: All right. Your Honor, just to emphasize. Being

16 familiar with the Courts practices in prior trials we tried to 17 exercise restraint in the designations that we have identified 18 so far and it was out intention to incorporate them into the 19 findings, conclusions, and the briefings. We never thought

20 that you were actually going to just skim through each and 21 every designation. We would direct Your Honor to the

22 designations that we believe are the most significant in the -23 24 25 THE COURT: MR. FINCH: THE COURT: All right. -- in the briefing. And youre going to do that in the

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226 1 proposed findings and in the briefs? 2 3 4 MR. FINCH: THE COURT: Yes, Your Honor. All right. And, Your Honor, I guess lastly is is

MR. SHEPPARD:

5 that to my knowledge I dont think anyone has designated a full 6 transcript of the deposition here. I think the designations

7 were giving to the Court with the full transcript with the 8 designations blocked as Your Honor said she didnt want it. So

9 again to echo what Mr. Herron said I think we were trying to be 10 judicious. 11 THE COURT: Okay. Thats fine. Its just that my --

12 with the visual acuity problem I have I would prefer larger 13 rather than smaller, although I did have a lawyer at one point 14 in time who gave me a disclosure statement with one letter 15 printed per page, I really dont need it quite that large. 16 17 18 helpful. 19 MR. EVERT: Your Honor, I think what we can do given THE COURT: (Laughter) But something between the two would be

20 that its the Courts preference to take the depositions at the 21 conclusion of the case, that will give us some time to put 22 together a joint admission of the deposition where we give you 23 the designated portions of the deposition in large font so that 24 then you can review the depositions, just the designations, and 25 theyll be clearly marked for you.

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227 1 THE COURT: Yes, I think that would be helpful and

2 unless there is a reason why you care who designated them, I 3 dont particularly care. In the federal system once evidence

4 is admissible it belongs, in quotes, to everyone and so I dont 5 -- it doesnt matter to me unless there is an objection by one 6 side to another who designated the depositions. 7 shortens your time thats fine with me. 8 9 Honor. MR. EVERT: And thats certainly fine with us, Your If that

So what we will do is well maybe take a week or so

10 after the conclusion of the evidence to add our designations 11 that we didnt put in because of this misunderstanding and then 12 well work with the other side to get to the Court soon 13 thereafter full designations of the depositions in large font 14 so that you can then just go through them at your opportunity. 15 16 17 Honor. 18 19 THE COURT: MS. ZIEG: Okay. We actually already have the designations THE COURT: Is that all right with the FC -Thats acceptable to the ACC, Your

MR. SHEPPARD:

20 done for each side so well just give you a copy and then you 21 can just add to them. 22 23 sure. 24 25 THE COURT: MR. EVERT: All right. Excuse me. Your Honor, Im sorry. We MR. EVERT: Sure. Whatever. Well work that out Im

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228 1 had planned to read these depositions next. Since there is no

2 need to do that before the Court and we can simply cite to them 3 later, I want to inform the Court a little bit about schedule, 4 you know, one of the issues that we run into with any timed 5 matter like this is trying to make the witnesses fit the slots 6 that you have. 7 We have witnesses who are required to begin and

8 complete their testimony tomorrow, we have others that are in 9 the same boat for Wednesday, some of which are the ACC and 10 FCRs which we are going to take out of order. 11 And so it seems to me that the most efficient use of

12 the Courts time and of the time we have for the trial would be 13 if we could start one of our witnesses Dr. Mullin today but 14 then were going to have to interrupt his testimony for the 15 other witnesses coming tomorrow and we can then add -16 17 THE COURT: MR. EVERT: Thats fine. -- him back in later. Is that acceptable

18 to Your Honor? 19 THE COURT: Thats fine with me. Does anybody object

20 to that process? 21 22 23 24 25 MR. SHEPPARD: THE COURT: No, of course not, Your Honor.

Thats fine. Fine with me.

UNIDENTIFIED SPEAKER: THE COURT: MR. EVERT: Thank you.

So we would call Dr. Charles Mullin to

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Mullin - Direct/Evert 1 the stand, Your Honor. 2 3 4 COURTROOM DEPUTY: Please raise your right hand.

229

CHARLES HENRY MULLIN, DEBTORS WITNESS, SWORN COURTROOM DEPUTY: Please be seated and speak into

5 the microphone. 6 7 BY MR. EVERT: 8 Q Could you state your -- oh, Ill get over the microphone DIRECT EXAMINATION

9 -- could you state your full name for the record please, sir? 10 A 11 Q 12 A 13 Q 14 A Charles Henry Mullin. And, Dr. Mullin, where are you employed? Im currently working at Bates White. And what do you do at Bates White? I am an economic consultant. I work mostly in the areas

15 of environmental and product liability. 16 MR. EVERT: Your Honor, by agreement of the parties

17 the CVs of the witnesses weve agreed are coming in and also 18 under the agreement earlier in terms of demonstratives in terms 19 of the reports. 20 Mullins CV -21 22 23 24 25 THE COURT: MR. EVERT: Yes. -- and copies of his reports. Without objection, Your Honor. If I could offer the Court a copy of Dr.

MR. SHEPPARD: THE COURT: MR. HERRON:

Thank you. No objection.

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Mullin - Direct/Evert 1 2 THE COURT: MR. EVERT: Thank you. His CV, Your Honor, has been marked as

230

3 Debtors Exhibit 97. 4 5 THE COURT: MR. EVERT: All right. And, Your Honor, Dr. Mullins affirmative Are

6 report has been marked as Debtors Demonstrative is it 9? 7 we up to 9 I think? 8 9 THE COURT: MR. EVERT: Yes. Yes.

And his rebuttal report is marked

10 as Debtors Demonstrative 10. 11 THE COURT: All right. Thank you. The report is 9,

12 the rebuttal report is 10? 13 14 organized. 15 16 17 Q Okay. THE COURT: MR. EVERT: Thank you. Thank you, Your Honor. I have put in front of you a Is that reasonably correct? MR. EVERT: Yes, Your Honor. Okay. Were getting

Sorry, Dr. Mullin.

18 copy of your curriculum vitae. 19 A

The only thing to my knowledge that it would be missing is

20 I was deposed last Friday. 21 Q Could you tell me, Dr. Mullin, briefly your educational

22 background? 23 A I received my undergraduate degree in 1992 from the

24 University of California at Berkeley in mathematics and 25 economics and I received my Ph.D. in economics from the

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Mullin - Direct/Evert 1 University of Chicago in 1998. 2 Q

231

And after you received your Ph.D. what did you do in the

3 working world? 4 A My primary employment was as -- on the faculty as an

5 assistant professor at Vanderbilt University in the economics 6 department. 7 Q And I think you also served to sit on the faculty at the

8 University of California Los Angeles, is that true? 9 A I took one year of leave when I was at Vanderbilt

10 University and I took that year leave during the calendar year 11 of 2002 at UCLA. 12 Q And have you previously been involved in the forecasting

13 of asbestos-related liabilities? 14 A 15 Q 16 A Frequently. Would you tell me about that experience please? I transitioned from really an academic career into Since then the

17 economic consulting about ten years ago.

18 largest component of my work has been really asbestos-related, 19 probably half to two-third of that, more in an insurance 20 coverage setting. The remainder of that work either related to

21 bankruptcy or other types of financial reporting, disclosures, 22 due diligence, projects for potential acquisitions, potentially 23 some insurance underwriting type activities. 24 And across those contexts whether its negotiating

25 settlement in an insurance coverage case or its an asbestos

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Mullin - Direct/Evert

232

1 bankruptcy, the quantum of future loss that a policyholder or a 2 debtor may face is a relevant issue. 3 Q And what other types of work have you done in economic

4 consulting at Bates White other than asbestos? 5 A Its been a wide array of different mass tort,

6 environmental tort type issues so Ive done work related to 7 silica, Ive done work related to various types of 8 environmental cleanup, Ive done work on a couple projects 9 related to tobacco. 10 food additives. 11 Q 12 A Im sure theres some others. Theres

Theres a few different things in there.

How large a firm is Bates White? Its I think in the neighborhood of 175 employees at this

13 point in time. 14 Q And what does Bates White do primarily in the economic

15 consulting world? 16 A Most of the work of the firm is focused in one way or It really varies by the practice areas

17 another on litigation.

18 in the firm, whether thats a formal state level litigation, 19 whether thats something like going in front of the FTC or the 20 DOJ on merger related work, but its all related to litigation 21 in some frame work with maybe 10, 15 percent of the work on 22 non-litigation matters. 23 Q 24 A 25 Q Have you published in the field of economics? Yes. Tell me what kinds of things you have published.

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Mullin - Direct/Evert 1 A

233

While I was an academic my research really focused on what Its an area

2 I would describe as robust estimation techniques.

3 within econometrics so econometrics is really the application 4 of statistical analyses to the types of problems that 5 economists look at. 6 And robust estimation is really trying to figure out

7 ways of instead of coming up with an answer, so instead of 8 saying the answer is, you know, five and Ive done the analysis 9 and invoked the assumptions, its to weaken the assumptions and 10 really come up with a more reliable estimate that has a broader 11 range. 12 So instead of maybe reaching a conclusion that the

13 answer to some question is five, you say with a high level of 14 confidence I know it falls between four and a half and five 15 point three. 16 Q You mentioned econometrics. Is that a subset of the field

17 of economics? 18 A Its one of the primary fields so at this point when you

19 go to graduate school in economics your first-year course work 20 typically is broken into three areas, microeconomics, 21 macroeconomics, and econometrics. And its kind of one of the

22 core sets of curriculum in the beginning and then it was one of 23 the two fields that I specialized in in my more advanced 24 graduate work. 25 Q In the articles that you described earlier that you had

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Mullin - Direct/Evert 1 published in the field of economics and econometrics, were 2 those in peer reviewed economic literature? 3 of journals? 4 A The large majority of what I published while I was an

234

I mean what types

5 academic was in peer review journals.

There was also a couple

6 that would not be characterized that way. 7 Q 8 A 9 Q Have you previously served as an expert in litigation? Yes. Have you previously served as an expert in

10 asbestos-related estimation litigation? 11 A In many of the cases I have from many of the coverage

12 cases, thats an element of it, and in the bankruptcy context 13 the only place where I actually testified in court would have 14 been the plant insulation confirmation hearing. 15 Q Other than the times that you have testified in court have

16 you served as an expert in asbestos-related estimation 17 litigation? 18 A 19 Q I have been retained numerous times. And have you been accepted as an expert in the -- at the

20 time you have been proffered as an expert? 21 A 22 Yes, I have. MR. EVERT: Your Honor, we would tender Dr. Mullin as

23 an expert in the field of economics, econometrics, and the 24 estimation of asbestos-related liabilities. 25 MR. SHEPPARD: Your Honor, may I?

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Mullin - Voir Dire/Sheppard 1 2 3 BY MR. SHEPPARD: 4 Q 5 A 6 Q Good afternoon, Dr. Mullin. Good afternoon. Now you testified that you had published peer reviewed THE COURT: Yes. VOIR DIRE EXAMINATION

235

7 articles in the field of econometrics as an academic. 8 would have been published more than ten years ago? 9 A

So those

I think the publication lags in economics, it can be quite It was all research I did more than ten

10 long, so I could look.

11 years ago, but many of the publications themselves would have 12 actually come out in print more recently. 13 Q 14 A How recent? I can look. I have two publications, one in the Journal

15 of Econometrics which is the Identification and Estimation with 16 Contaminated Data, When Does Covariate Data Sharpen Inference, 17 from 2006, and a second one which is Recombinant Estimation for 18 Normal-Form Games with Applications to Auctions and Bargaining 19 in Games and Economic Behavior also in 2006. Those would be

20 the two most recent peer reviewed publications. 21 Q Have you ever published a peer reviewed article, Dr.

22 Mullin, in which you laid out the methodology that you employed 23 in this case? And let me be more specific if I can. Where you

24 laid out the methodology where you disaggregate the asbestos 25 liability by subtracting complicit costs as well as reallocated

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Mullin - Voir Dire/Sheppard 1 liability as a result of joint and several liability. 2 A I havent published any peer reviewed in the academic

236

3 sense of a peer reviewed article on asbestos directly, only on 4 the types of estimation techniques that I would be employing to 5 make those, draw those inferences. 6 Q So youve never published an article where you discussed

7 the methodology to use -- you used in this case, is that 8 correct? 9 A 10 Q 11 A I said theres a line -In an asbestos case. -- theres a line there which is in terms of the

12 methodologies, I view the methodologies that Im employing very 13 much draw upon the types of research I did and the articles I 14 published methodologically of how do you draw inference in this 15 type of a setting. Having done an application of that in an

16 asbestos setting, I have not published an article that applies 17 those techniques to an asbestos-related setting. 18 Q Okay. And my question was really quite specific, Dr.

19 Mullin.

Did you ever publish an article where you discussed

20 your theory of implicit defense costs in an asbestos 21 estimation? 22 A Would I consider it -- the theory Im relying on is the

23 theory that comes out of the law and economics literature, its 24 not my theory. 25 Q But that theory -The question was really simple

Dr. Mullin, I get that.

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Mullin - Voir Dire/Sheppard 1 and Id ask you to just answer the question. 2 A I said, no, I havent published a specific article on

237

3 asbestos-related litigation. 4 Q Okay. Now you also testified that you have provided

5 economic consulting and in particular with regard to asbestos 6 estimation in the insurance field, is that right? 7 A Well in insurance I am frequently retained in

8 coverage-related litigation matters. 9 Q Okay. And does that relate to estimating asbestos

10 liabilities for certain defendants? 11 A In a coverage setting normally the future liability is But for all of

12 handled more on a declaratory judgment fashion.

13 the settlement discussions a common way of those cases ending 14 is by commuting the insurance policy. So the insurer will

15 write a lump sum check today that absolves them of any 16 obligations under the policy. 17 And so a major piece of all of those is always

18 forecasting what the future liabilities will be, allocating 19 them to the insurance to come up with what would be a 20 reasonable size check to commute the policies. 21 Q Okay. Can we assume, Dr. Mullin, that you have never in

22 those retentions used the methodologies that we are talking 23 about here in terms of implicit defense costs and reallocation 24 of liability as a result of joint and several shares in the 25 insurance field?

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Mullin - Voir Dire/Sheppard 1 A I have used them.

238

I have used them in a different manner

2 than here.

But the reallocation issue actually has come up The transaction

3 frequently in insurance coverage settings.

4 cost arguments mean most insurance covers both defense costs 5 and settlement payments. And since the insurance covers both

6 the distinction is not normally relevant. 7 Q 8 A So thats a no? So on the transaction cost component no, on the

9 reallocation component in a coverage setting yes. 10 Q Okay. Now you also testified that you provide services

11 with regard to companies doing due diligence, correct? 12 A 13 Q Correct. Okay. And does that also involve the estimate of asbestos

14 liabilities? 15 A Its typically depending on how extensive the liabilities

16 have been historically, is focused on the total quantum of loss 17 from an economic sense, settlement payments, defense costs all 18 lumped together. The distinction at times is made between

19 settlement payments and indemnity, particularly if the company 20 still has primary insurance limits available where it would be 21 paying defense in addition to those limits, so that distinction 22 would affect the economics of the transaction. 23 Q And with regard to your work in financial reporting, do

24 you -- have you ever used the methodology that you have 25 proffered in this case?

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Mullin - Voir Dire/Sheppard 1 A

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Again the general methodologies that Im relying on, yes. most if not all of the steps. In connection

2 I have gone through 3 Q

Well let me make it more specific if I can.

4 with your consulting on the financial reporting of public 5 companies, have you ever advised one of those companies that 6 they should report a number where they reallocate their 7 liability based upon some construct of liability? 8 A I think in a broad sense yes. We do scenario analyses for

9 our clients in this frame work. 10 were forecasting.

We dont give one number when

You know, financial reporting frame work

11 theres a range and one of the things we explicitly quantify in 12 that range is in the sense of lower expenditure scenarios for 13 the company or ones where there would be developments of more 14 advantageous evidentiary rules for them. 15 And potentially as, for example, as other bankruptcy

16 proceedings have ended and more of the 524(g) trusts have come 17 online and started paying money to claimants, we have 18 explicitly run scenarios where weve quantified for clients 19 what could be the potential impact of that on both their 20 defense and indemnity payments as that evolves going out into 21 the future. 22 Q Have you advised a client to report in a publically filed

23 financial statement that they should subtract from their total 24 indemnity payments a sum based upon a reallocation of liability 25 based upon several share?

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I said weve only done that in a partial sense which is if

2 you were to take for example W.R. Grace, we have incorporated 3 that in the future there will be a trust paying money. Thats

4 not happening today, it wasnt happening in their history of 5 two, three, four years ago. That will lower their costs

6 potentially in the future and weve explicitly -7 Q 8 A 9 Q 10 A Dr. Mullin, my question was about financial reporting. Im answering that. Okay. By --

In that context we will quantify for them what is the Now it

11 effect of the return of payments from that defendant.

12 will be the trust as a successor to the defendant, but we 13 explicitly accounted for how that would affect, or at least 14 potentially under scenario analysis, affect their future 15 payments. 16 We havent done it holistically as though every So its only a partial return because the

17 defendant was back.

18 trust may or may not pay as much as the defendant was before. 19 But weve done the same types of analyses. 20 Q Now youve never testified in an estimation hearing in an

21 asbestos bankruptcy case, is that correct? 22 A 23 Q Thats correct. Okay. And youve never been admitted as an expert have

24 you, Dr. Mullin, in an asbestos estimation hearing? 25 A No, this is the first time Ive been asked to testify in

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Mullin - Voir Dire/Sheppard 1 that context. 2 Q

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And I guess, Dr. Mullin, the theory that youre espousing

3 here, is that a novel theory that has never before been 4 testified to? 5 A I dont view it as a novel theory, I view it as its been

6 in the peer reviewed literature and law of economics since the 7 1970's, that transaction costs affect settlement amounts. The

8 joint transfer of liability, the fact that when Johns Manville 9 went bankrupt that created orphaned liability shares for others 10 is a well established both empirical and theoretical concept. 11 So I dont view either of these concepts in any way as being, 12 you know, novel. 13 Q Let me try it again. Have you ever testified about

14 subtracting a concept of implicit defense costs from a debtors 15 asbestos liability before? 16 A 17 Q I have not testified on that specific topic before. Have you ever testified, Dr. Mullin, about subtracting

18 from an asbestos defendants liability a component for 19 reallocation of liability? 20 A There are aspects of that that I think came up in my

21 testimony in the plant insulation confirmation hearing. 22 23 Q MR. SHEPPARD: Excuse me, Your Honor.

Youre not offering an opinion in this case are you, Dr.

24 Mullin, regarding what the present and future asbestos 25 liabilities of Bondex, or the Reardon line as you call them,

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Mullin - Voir Dire/Sheppard 1 would be had these bankruptcies not been filed, is that 2 correct? 3 A 4 Q 5 A No, thats not correct. Thats not correct?

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Thats the first step in my analysis and then I break that

6 apart into its various components so thats really the first 7 piece that comes out of the analysis I do is that 8 quantification. 9 Q Isnt it true, Dr. Mullin, that you testified in your

10 deposition that you are quantifying what the debtors true 11 liability would be under the Federal Rules of Evidence? 12 A 13 Q 14 A No. Its not? I believe -- I believe what I testified was that I had a

15 specific scope of charge but then I was providing building 16 blocks for which one would be able to under alternative legal 17 rulings determine what the liability is. 18 Q So you didnt testify in your deposition that you are

19 preparing this analysis under the Federal Rules of Evidence? 20 21 question. MR. EVERT: Your Honor, I just object to the

Thats not the way you impeach someone through the

22 deposition. 23 24 THE COURT: Thats sustained. Thank you, Your Honor. Your Honor, if

MR. SHEPPARD:

25 I could just have one second.

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Mullin - Voir Dire/Sheppard 1 2 3 4 5 A 6 Q 7 8 THE COURT: Yes. Your Honor, may I approach?

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MR. SHEPPARD: THE COURT:

Yes. Thank you.

MR. SHEPPARD: Thank you.

Dr. Mullin, let me ask you to turn to Page 32. THE COURT: Whats the date of the deposition please? Im sorry, Your Honor. This is the

MR. SHEPPARD:

9 deposition of Charles H. Mullin taken November 15th, 2012. 10 11 THE COURT: Okay. Thank you.

MR. SHEPPARD:

And, Your Honor, I would have this

12 marked for identification purposes as ACC demonstrative 1001. 13 14 Q THE COURT: All right.

So, Dr. Mullin, Im going to read from Line -- can you

15 read from the question on Line 2 please? 16 Q Okay. I think I understand your methodology and I And again what Im trying to understand is

17 appreciate that.

18 where or how you are defining liability and in what context. 19 Are you defining liability in the context of had they stated in 20 the tort system or in some other venue? 21 A 22 Q 23 A 24 but. 25 A So the data Im relying upon, as I said, its based from So the -And would you read the answer? Yeah. So the answer. Thank you.

Date is supposed to be data there

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Mullin - Voir Dire/Sheppard 1 the tort system. So it is using a tort system definition of Thats where the

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2 liability in the state tort system. 3 settlement data comes from. 4 predicated upon. 5

So those are what the numbers are

I think you can conclude that that overstates what

6 the liability would be if it was in a Federal Rules of Evidence 7 system as opposed to the state system. But the data itself is

8 based on the state system and it is the liability in the state 9 court which as I said I think overstates what the liability 10 would be if you move it to a federal system. 11 Q 12 Thank you, Dr. Mullin. MR. SHEPPARD: Your Honor, the Committee would renew

13 its motion, its Daubert motion seeking to exclude the 14 testimony of Dr. Charles Mullin on the grounds that he is not 15 estimating the liabilities of this debtor as if they were in 16 the tort system and under state law as required under the 17 Bankruptcy Code and 524(g). 18 19 20 MR. DORSEY: THE COURT: MR. EVERT: We would join that motion. Mr. Evert. Your Honor, we would oppose the motion of Dr.

21 course based on all the arguments that we made previously.

22 Mullin is clearly an expert, clearly has just indicated that 23 his estimate is based on the state court, starts with the 24 historical state court data, and we would for all the reasons 25 we enunciated in our previous response to this motion would

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Mullin - Direct/Evert 1 oppose it. 2 THE COURT:

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Just from the deposition statement that

3 the witness just read the statements clear that he is 4 estimating based on the liability thats in the state tort 5 system. Im not sure what the next phrase that it may

6 overstate the liability if he moved to a federal system means. 7 But it seems to me that thats a question for examination that 8 does not go to qualifications but may go to the content of his 9 testimony so the objection is overruled. 10 11 12 13 BY MR. EVERT: 14 Q Dr. Mullin, Im glad were here at this point because I Mr. Sheppard asked you a number of MR. SHEPPARD: MR. EVERT: Thank you, Your Honor.

Thank you, Your Honor. DIRECT EXAMINATION

15 think its a good segue.

16 questions going toward the issue of whether you believed your 17 methodology was novel which is a term weve heard many times in 18 this case. Would you explain to the Court what your

19 methodology here in estimating the liabilities is and what you 20 were asked to do? 21 A I was asked by the debtors ultimately to provide an

22 estimate of the several share of liability arising from the 23 various products, in my reports I define that as the Reardon 24 product line, but the asbestos-containing products that were 25 produced over the years and what would be, you know, their

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1 several share of liability in the state court system that arose 2 from that. And I was asked to do that effectively separately

3 for each of the debtors. 4 And methodologically however ended up going about

5 doing that, I mean I can get how I arrived at this methodology 6 at some point, but ultimately I started with the state tort 7 system settlement data and I took that, figured out from that 8 what was really driving the underlying liability, looked at how 9 that would have progressed in the tort system had they 10 remained, to get a count of how many claims of different types, 11 not just how many claims in total, but how many claims in 12 different categories would the debtors have faced. 13 And I ultimately put those into four categories which

14 I viewed as, you know, high-value, mid-value, low-value, and 15 claims that would be dismissed. And then for each of those

16 types of claims I continued to analyze to figure out how much 17 money was associated on average with each of those claim types. 18 And thats the piece that then really differed The tort system would

19 between what was a settlement payment.

20 tell me okay, theres in the neighborhood of 50 high-value 21 settlements a year and those claimants got close to half a 22 million dollars a year in the tort system or half a million in 23 payment so thats in the neighborhood of $25 million a year 24 being paid to this group of 50 high-value claims. 25 And then the question was for that how much of thats

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1 liability, how much of that -- and when I say liability I mean 2 what they would have ultimately been found liable for by a 3 jury. So whats the expected outcome at trial. And thats They

4 really how the law and economics literature defines it.

5 take the expected -- the probability youll be found liable 6 times the damages conditional on being liable since thats the 7 expected loss. 8 So its really trying to say how much of that was

9 expected loss, how much of what was due to the debtors desire 10 to avoid defense fees, how much of that was due to a transfer 11 of liability. And when I talk about that several share, Im

12 really talking about thinking of a world where Johns Manville, 13 Celotex, Eagle Pitcher, you know, U.S.G., everybodys back in 14 the court system. So all of those codefendants are present and

15 youre back in that frame work where all those codefendants are 16 paying 100 percent of their share. How much would Bondex be

17 paying or how much would the debtors be paying? 18 And that was the ultimate opinion that I was asked to

19 get to was for each of SPHC and Bondex what was that several 20 share under that theoretical world in which all of those 21 defendants are back in the tort system with them. 22 23 A 24 Q 25 MR. SHEPPARD: Your Honor, we would --

To get there I did it in steps. But you started -MR. SHEPPARD: Your Honor, we would renew our motion.

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1 We would renew the Daubert motion based upon the answer of the 2 witness. 3 4 THE COURT: Why? Because he just said that hes

MR. SHEPPARD:

5 estimating them in a theoretical world and not as if they were 6 in the tort system. 7 THE COURT: He said he was estimating them as though

8 all of the debtors essentially were back in the tort system. 9 Again, I mean I think this goes to the weight to be attributed 10 to his evidence but I dont -11 12 13 Q MR. SHEPPARD: MR. EVERT: Thank you, Your Honor.

Thank you, Your Honor.

All right, Dr. Mullin, you covered a lot of ground there. I think you

14 Let me go back to the beginning of the answer.

15 said you started with the historical claims data, is that 16 right? 17 A 18 Q 19 that. 20 A Correct. When you say you started with the data, tell me about What did you do? I really did the same first step I do on any project that I want to

21 comes into me for an asbestos-related matter.

22 understand the products that the defendant had and I want to 23 map that to the tort history experience and understand whats 24 driving that tort history experience. 25 I have a strong belief that you have to understand

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Mullin - Direct/Evert 1 why the tort outcomes that are being observed are happening.

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2 You cant just take them as a black box and blindly extrapolate 3 them forward. 4 You need to have that understanding of what are the

5 merits, whats driving different types of claims to be able to 6 give a reliable forecast going forward so thats the first 7 thing I always do is ground myself in that tort experience and 8 really the use of the defendants products. 9 Q So you were presented with a database that had information

10 in it, settlement information and dismissal information about 11 the historical claims, is that right? 12 A 13 Q Correct. And then how did you take that information and do what you

14 just described you wanted to do? 15 A The very first thing I did with it was just I did some

16 simple tabulations, just looking at how many claims were they 17 getting by year, how much money were they spending by year, 18 just getting a high-level overview of what was the experience. 19 Ultimately I requested from the debtors a sample of

20 underlying claim files, so the underlying files that actually 21 led to the values that are in the database, to be able to get a 22 richer picture of what was the history. 23 Q And tell me about that sample. So when you say you asked

24 for a sample of the underlying claims, what does that mean? 25 A I asked for approximately 1,000 claim files so I

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Mullin - Direct/Evert 1 constructed a statistically representative out of random 2 sample. Its not a simple random sample.

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I was more concerned

3 about the claims that were paid money than the ones that 4 werent paid, so it over sampled paid claims relative to 5 dismissed claims. But it was a statistically representative

6 sample of about 1,000 claims and I asked for really the 7 underlying files from the debtors on those claims. 8 Q And then ultimately as a part of the process with the

9 experts on the other side did you look at additional claim 10 files? 11 A Ultimately the FCR and ACC collectively sampled It as well over sampled the

12 approximately 450 claim files.

13 high-value claims so there was an overlap of I think more than 14 100 of the files between the original sample that I requested 15 and the sample that was requested by the FCR and the ACC. 16 in total there was around 1250 claim files. 17 Q And those claim files gave you deeper information in terms So

18 of the individual claims whereas from the database you had 19 pretty much settlement amounts, is that? 20 A The database is fairly high-level information. The

21 underlying claim files let you construct an exposure profile 22 for example so you can look at a settlement and see did a 23 claimant, you know, were they an electrician, were they a pipe 24 fitter, did -- were they in the Navy. You can really lay out

25 whats their history of different sources of exposure, you can

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1 figure out which particular products for the debtors they were 2 asserting exposure to. It just gave you a lot richer

3 information about the claimants and what drove the liability. 4 Q Did you -- were verdicts or cases that were tried to

5 verdict, were they included in those claim files? 6 A 7 Q 8 A They were. I asked for all the verdicts.

So it was not a sample. It wasnt a sample or, technically its a sample but, yes,

9 its -- we sampled the whole population. 10 Q 11 A Its a sample of 100 percent. Correct. Yeah. Okay. Im trying to

We asked for all the verdicts.

12 remember if we got them all or if one of them couldnt -- I 13 think we got them all. I dont remember with certainty whether

14 it was all or we were missing one. 15 Q Okay. How about defense fee information? Did you request

16 information in that regard? 17 A I did. Theres only for a fairly recent time period was

18 there claim level specific defense information available, or at 19 least that I received, that allowed you to go claim by claim 20 and see how much was being spent and then its more aggregate 21 kind of annual expenditures by fiscal year is what I attained 22 for earlier years. 23 MR. EVERT: Your Honor, at this time just for an

24 administrative matter Id like to offer for admission Debtors 25 Exhibit 1 which is the historical claims database which I think

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Mullin - Direct/Evert 1 is to be admitted without objection. 2 3 4 5 admitted. 6 Q MR. DORSEY: It is, Your Honor. No objection, Your Honor. Debtors Exhibit 1 is

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UNIDENTIFIED SPEAKER: THE COURT: All right.

Now, Dr. Mullin, when you looked at the historical claims

7 database and you started to compile information about the cases 8 that were within that database, what were you looking for 9 initially? 10 A Initially Im looking for really whats driving the

11 liability, has the liability been stable, is it not, you know, 12 the payments, how is this particular -- how are these two 13 debtors behaving in the tort system, and trying to learn at the 14 same time how that maps to how strategically are the claims 15 being defended to see if thats varying by jurisdiction or in 16 some way that would explain differences that are observed in 17 that data. 18 MR. EVERT: Your Honor, if I may approach with I should have warned the Court that I

19 debtors demonstrative.

20 cannot count so apparently I -21 22 23 Q THE COURT: MR. EVERT: Up to 11 I believe. Yes, Your Honor.

Now, Dr. Mullin, at the debtors request were you only

24 interested in mesothelioma payments or mesothelioma claims? 25 A Not initially. I mean initially I was looking at the

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1 totality of their experience, but I forget the exact date but 2 at a certain point the parties reached a stipulation with 3 regard to the non-mesothelioma claims and so the only -- my 4 scope of inquiry got constrained at that point to just looking 5 at mesothelioma claims. 6 Q Now for demonstrative purposes Ive handed you Debtors

7 Demonstrative D-11 and I have it up on the ELMO for those who 8 dont have a copy. 9 A Tell me what this illustrates.

This is so the vertical bars in the graph are showing for

10 each year what was the aggregate amount of settlement 11 commitments that were made in that given year. So its not --

12 its when settlement agreements were struck is how everythings 13 been dated. 14 Q 15 A And why would you use commitments instead of paid dollars? Well for one reason I wanted to include the what goes by Those are

16 SBND claims or settled but not documented claims.

17 settlement commitments that had been made within the tort 18 context but the money hadnt actually been paid yet. 19 a relevant part of the history. 20 The history is really when -- when are the -- how But its

21 much are they agreeing to pay and when as opposed to the cash 22 flow issues, and when I was here earlier and Mr. Tompkins was 23 talking about how they made structured payments through time, 24 its not even clear how you map those to individual claimants. 25 So when you settle a group of claims for $22 million and you

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1 agree to write three checks in the future, which checks went to 2 which claimant, doesnt have a clean dating. When the So its one

3 settlement for those claimants was struck does.

4 dating convention that I can use consistently across all of the 5 claims. 6 Q Okay. So as I understand it this particular graph it is

7 the bars represent dollars? 8 A Correct. The bars represent dollars. The left-hand

9 access is telling you how many dollars it represents. 10 Q 11 A 12 Q And I see that the years are in fiscal year. Correct. You heard Mr. Tompkins testify I think about RPMs fiscal Is that the fiscal year that were

13 year ending on May 31. 14 talking about here? 15 A 16 Q 17 A Correct.

This is a June 1 to May 31st fiscal year.

And why would you use fiscal year? I was motivated for two reasons. One was convenience. So if

18 The debtors petition date aligns with the fiscal year.

19 you use fiscal years you have complete years in every year. 20 You dont have to deal with a partial year and any adjustments 21 one may need to make for only observing part of a year. 22 allows you to do everything in full year increments. 23 Two, in my experience most defendants try to manage So they to the degree It

24 their litigation on a fiscal year basis.

25 they have cash flow concerns, to the degree they try to manage

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Mullin - Direct/Evert 1 or hit certain targets or do different things, theyre doing 2 that on a fiscal year basis, not on -- many the fiscal and 3 calendar year are the same thing, but thats -- when those 4 differ most defendants data looks more stable and its more 5 reliable if you look at it through that lens. 6 Q

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So if we look at this graph it appears to me that there --

7 you have three different colors here for the dollars, the green 8 and the, I dont know, is that orange, and the blue. 9 tell me -10 A 11 Q 12 A Correct. -- what those represent? Conceptually the green is really before, I mean the green Thats Can you

13 is very hard to see, its for the 1995 through 1999.

14 before there was really a runup in either claim count or 15 dollars. So this is when they had a very small footprint in

16 the underlying asbestos litigation and the orange is really the 17 transition period. 18 From 2000 to 2002 is the beginning of ramping up

19 where they saw a large increase in the number of claims and at 20 the same time a correspondingly large increase in settlement 21 payments. 22 By 2003 theyd really transitioned to that new level.

23 So theyve gone from paying, you know, call it a million a year 24 in the 1990's to paying about 50 million a year. So theres a

25 very large increase but where you see 50 million a year, you

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Mullin - Direct/Evert 1 see 50 million a year in 2003, 2004, you also see a number 2 close to that in 2010. And since 2003 its been relatively

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3 stable and theres clearly year-to-year movements, but relative 4 to the increase that we observe previously things that -- the 5 world stabilized for these defendants. 6 Q Now I see a small number in 2006 and higher numbers in 08 Does that affect your view of the stability? So in 2006

7 and 09. 8 A

It was something I looked into explicitly.

9 there was about half the number of settlements that you would 10 observe in a normal year, you know, there is instead of 11 settling in the sense of -- when I say settlement I mean paying 12 as opposed to resolving which would include dismissals -- there 13 was about half as many settlements as youd normally observe, 14 it was around 250 instead of 500. 15 payments that year. 16 You see a correspondingly higher number of That resulted in much lower

17 settlements and higher amount of payment in both 2008 and 2009. 18 If you actually track the claims through, the claims paid in 19 08 and 09 are a little bit -- have been in the tort system 20 longer, theyre more aged. The data is very consistent in

21 terms of all the underlying characteristics with for some 22 reason it appears that the debtors deferred some of their 23 settlements a bit and the numbers line up almost exactly. 2006

24 is about $20 million below 50 million and 2008 and 2009 are 25 each 10 million above.

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Mullin - Direct/Evert 1 So theres the one year thats 20 million below, They appear to

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2 theres two years that are 10 million above.

3 really be offsetting effects in terms of the timing of payments 4 and it averages about 50 million a year. 5 Q And in your efforts to begin your estimation of the

6 debtors mesothelioma liabilities, what is the importance of 7 this stability from 2003? 8 A Well this -- the most important thing I took from this is

9 that I really should be focusing on the 2003 to 2010 time 10 period. I mean going back further than 2003 Im going back You know 2003 to 2010

11 into a different world for the debtors.

12 is the world in which theyve been living and appears to be 13 relatively stable. So I was going to focus my attention on

14 those eight years as opposed to trying to reach further back. 15 It kind of framed for me what was the appropriate time period 16 to explore. 17 18 19 Q MR. EVERT: THE COURT: Your Honor, may I approach? Thank you. Thank you.

Dr. Mullin, Ive handed you Defendants -- Debtors -- Im

20 going to say that a lot, Ill just tell you right now -21 Debtors D-12 demonstrative, for demonstrative purposes. 22 if you would tell me what the blue bars on that graph 23 represent. 24 A Theyre really the exact same blue bars that were on the And

25 previous demonstrative, its just now only focusing on those

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Mullin - Direct/Evert 1 last eight years of fiscal year 2003 through 2010. 2 Q

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So this is the 03 to 10 fiscal year dollars committed by

3 the debtors in mesothelioma settlements, is that right? 4 A 5 Q Correct. And again we are talking about fiscal years as we were in

6 the last graph, is that correct? 7 A 8 Q Thats correct. Now the title of this demonstrative or the legend is

9 stable history combined with Nicholson extrapolation suggests 10 between 600 million and 800 million nominal in future tort 11 settlements. 12 A Tell me what that means.

So we heard a bit earlier today somewhat about the I mean Nicholson and co-authors

13 Nicholson curve and forecast.

14 wrote a paper back in 1982 which laid out a forecast of future 15 asbestos disease -- mesothelioma disease incidents. It did

16 things beyond that but of interest to us is the mesothelioma 17 ones. 18 I have -- that model if I remember correctly right

19 now actually ends in 2029, but it doesnt go all the way out to 20 2050, 2060's. I have extended that out based on the work done So the 2009 forward

21 really in the KPMG version of that model.

22 portion of that is technically an extension of whats seen 23 within Nicholsons paper. 24 But so Nicholson has a shape of a curve for how many

25 future diagnoses or, you know, incidents of mesothelioma will

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And what the exercise that I did is I said if I assume

2 everything is going to be held constant, so for every claim, 3 for every individual, there is going to be an equal likelihood 4 in the future that that individual thats diagnosed with 5 mesothelioma will file a lawsuit against the debtors, the 6 probability they get paid will stay the same, the probability 7 theyll, you know, everythings static and we just kind of 8 extend that whole thing out. 9 If I extend that all out and do it very simple just So Im looking -- and if I calibrate

10 off of payment level.

11 that and say the whole eight-year period is the period I want 12 to calibrate that to and I just fit the curve and do the best 13 statistical fit to those eight years, it tells me theres going 14 to be about $600 million of future tort payments, you know, 15 thats the blue line. 16 If I take that off the highest points observed in the

17 history and calibrate it off the two highest years observed, so 18 2008 and 2009, it tells me that if I brought it off the two 19 high points and just extrapolate out, you know, Im going to 20 get 800 million of future tort payments. You know these are

21 nominal, Im not touching, you know, time value of money type 22 issues. 23 But that says if you want to look at tort settlements You know its running

24 youd expect something in that range.

25 off kind of the eight years or since youve seen the level

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Mullin - Direct/Evert 1 shift and then the two highest years observed. 2 Q

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So theres a lot of information there that I want to try First of all, help me understand. The

3 to break down.

4 Nicholson study as I understand it projects incidents in terms 5 of people yet its on -- the axes on this graph is dollars. 6 tell me how that -- does it have to do with the slope of the 7 curve or how does that work? 8 A Correct. Im forecasting out the dollars proportional to So where if you look at the blue line So

9 the number of people.

10 and in the two thousand -- 2003 to 2005 period right about $50 11 million. What the Nicholson curve is telling me is for every

12 50 people that used to get diagnosed with mesothelioma back in 13 2003 and 04, if I go forward to say a year like 2025 where 14 this curve is at about 20 million, it says theres going to be 15 about 20 million -- there are going to be about 20 people. 16 So its just scaling things proportional to the So going from 50

17 number of people that will get mesothelioma.

18 to 20 on this graph is going from for every 50 people that used 19 to get mesothelioma Nicholson predicts by that year there will 20 only be 20. 21 Q So if we superimposed on top of this graph the Nicholson

22 incidents curve where the left axis is people, is incidents of 23 disease, it would look that exact same slope. 24 A 25 Q Right. It has the exact same shape. And the blue line you say is taking the -- Im

All right.

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Mullin - Direct/Evert 1 sorry, let me withdraw that. 2 extrapolation? 3 A Would you call this a simple

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I wouldnt call this a forecast I mean because youre not

4 really looking at whats going on in the underlying data, 5 youre just taking an observed eight years of expenditure and 6 youre saying Im not trying to understand yet why that 7 happened, but if I assume that thats stable and was going to 8 get repeated what would I see in the future. I havent done

9 the work yet to see if thats stable would it get repeated, but 10 if you thought that it was relatively stable and the 11 expenditure levels itself is relatively stable, what would you 12 expect to see. 13 Q So the blue line is taking the lower level of the recent

14 tort system settlements and just extrapolating it out along the 15 Nicholson curve, is that right? 16 A Its really not the lower level, its taking the last So I didnt -- if you notice if you -- its

17 eight years.

18 actually above every year except the two and its substantially 19 above 2006. So actually the amount of the blue bars above the So its

20 line and below perfectly cancel out, in effect. 21 fitting to that eight-year period. 22 Q

So in a stable world you would expect a forecast to

23 ultimately once the appropriate work is done of nominal tort 24 system payments to fall into this realm? 25 A So if I had a stable world with a stable inventory every

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Mullin - Direct/Evert 1 aspect of it was stable, I would expect the tort payments in 2 the future, if you were doing this in example of a financial 3 reporting context, you would say their tort system payments

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4 over the next 50 years will probably sum up to most likely 600 5 million and Id be really surprised if I got a number higher 6 than 800 million given that thats coming off the two highest 7 observed years. 8 Q And again I think you mentioned this and I think this is

9 going to be a constant problem throughout, these are nominal 10 numbers and not discounted for present value or the like, 11 correct? 12 A 13 Q Correct. Okay. So once you performed this simple extrapolation and

14 you looked at this Ill call it back of the envelope which will 15 probably offend you for which I apologize, whats the next 16 step? 17 A Well the next step, those tell you it should be around 600

18 million and not less than 800 million nominal, if the world is 19 actually stable. So now the question is lets go look and see

20 is -- has that eight years, even though superficially if you 21 look at total expenditure its been relatively stable, that 22 doesnt necessarily mean that the underlying dynamics are 23 stable. 24 So I then my next step was to dig down and look at

25 the underlying dynamics to see whether or not there was actual

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1 stability in the underlying dynamics that lead to the observed 2 expenditures or settlement commitments. 3 4 5 Q MR. EVERT: THE COURT: Your Honor, may I approach? Thank you.

Now, Dr. Mullin, I have handed you the Debtors

6 Demonstrative D-13 which I know everyone is shocked, it 7 discusses an unstable trend which is what you were just talking 8 about. 9 A So will you tell the Court what this illustrates?

This is looking at the propensity to sue the debtors and

10 its looking -- so the denominator here is the Nicholson, its 11 really the Nicholson forecast of the number of individuals that 12 get mesothelioma in a given year, the numerator is the number 13 of individuals that named the debtors that year and this is 14 filings over incidents. 15 And its by calendar year because thats the nature The Nicholson forecast

16 in which the Nicholson forecast comes.

17 is coming by calendar year and then I did annualize whats 18 really been observed in I think 2010. 19 But when you look at this graph you see that what you You get a nice -So it says that,

20 may first actually think is a stable trend. 21 a linear line fits it actually quite well.

22 you know, the propensity to sue the debtors has been growing 23 and growing at a consistent rate. 24 Why I have labeled it as unstable is its clearly not The propensity to name the debtors or sue the

25 sustainable.

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Mullin - Direct/Evert 1 debtors cant continue to grow forever.

264

And what the line is

2 intended to illustrate is if you did just blindly extrapolate 3 this trend youd get a nonsensical answer. Youre going to

4 move to more than 100 percent of the people diagnosed with 5 mesothelioma are suing the debtors which doesnt make sense. 6 So although there is a trend in the data it cant If it were stable it would mean it would So were going

7 possibly be stable.

8 continue forever and we know that cant happen.

9 to need to understand that better about how -- whats going on 10 there and how it affects total payments. 11 The other thing that this points out is although the

12 number of claims, the propensity to sue the debtor has been 13 growing, you see it going from about 25 percent in 2003 to a 14 number thats probably a little north of 40 percent or in the 15 neighborhood of 40 percent by 2010, we observed that their 16 actual settlement commitments werent growing. 17 So theres going to be -- theres a little bit of a Youve got to reconcile these two

18 conundrum there in a sense. 19 things.

Theres been relatively stable settlements but an So

20 increasing number of claimants are naming the debtors.

21 clearly these increasing numbers, theres something thats 22 offsetting or youd expect to see the actual tort settlements 23 to be rising as the number of claimants rises. 24 Q So if I could return to the Debtors Demonstrative Number

25 3, Im sorry, Number 11, these are the tort commitments that

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Mullin - Direct/Evert 1 you were referencing a moment ago? 2 A 3 Q Yes. And I just want to make sure I follow this point. You

265

4 were surprised to find that with a stable spin year in and year 5 out there was an increasing propensity to sue trend? 6 what you said? 7 A Well not necessarily surprised, but saying this is Is that

8 something thats going to need further explanation because if 9 the propensity to sue goes from 25 percent to 40 percent 10 between 2003 and 2010, wed expect 50 million of expenditure in 11 2003 to be 80 million of expenditure in 2010 if these moved 12 together. 13 So thats -- but we dont see it rising up, we dont

14 get that same linear upward trend in total settlement 15 commitments so theres got to be more to the story than just 16 that as you add more claims, if you double the number of claims 17 you double the amount of money. 18 simple. 19 Q The story cant be that

These two things contradict that.

In returning to Debtors 13, which is the increase in the

20 propensity to sue, it cant continue I think you said in this 21 vein forever. 22 A No. If we continued this way forever by 2035 we have more

23 than 100 percent of the incidents of mesothelioma naming the 24 debtors. We dont have 100 percent of the incidents of

25 mesothelioma even filing a lawsuit today.

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Mullin - Direct/Evert 1 2 A 3 4 Q 5 A 6 Q MR. EVERT: Thank you. THE COURT: Thank you. Are you okay? If I may approach, Your Honor?

266

Do you have plenty of water? Yes, Im fine.

Dr. Mullin, Ive handed you what is Debtors 14, D-14 for

7 demonstrative purposes, and if you would tell us what that 8 represents. 9 A So this is a very similar graph to the previous one, were

10 still looking at things in calendar years just to make it 11 directly comparable to the last graph and so as opposed to 12 looking at the propensity to sue this is looking at the average 13 settlement amount. 14 So its saying for the claims that were filed in 2003 For

15 the average settlement amount was approximately $150,000.

16 the claims as we move forward to the claims filed by 2010 the 17 average settlement amount was about $75,000. So weve seen the

18 average settlement amount decline as the propensity to sue has 19 risen. 20 So this may provide us an explanation, we need to do

21 more work still at this point, but if youre wondering why is 22 it that as the propensity to sue increases we dont see the 23 doubling, with the doubling of the propensity to sue in 24 settlement payments. At the same time weve been observing an

25 offsetting downward trend in the average settlement amount so

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1 the value of claims in that sense on average is getting lower. 2 Q And I presume you are not forecasting based on this graph

3 that at some point the claimants owed the debtors money. 4 A No. This is similar to the other graph. The trend,

5 although a linear line fits it well for the last eight years, 6 if you were to continue that linear trend just as its 7 nonsensical to say more than 100 percent of the people are 8 going to sue the debtors, I think its equally nonsensical to 9 say by 2015 the claimants are going to be paying the debtors. 10 Neither of those outcomes makes sense. 11 So you know that although theres been a stable trend

12 line over the last eight years, you can just on its face 13 extrapolating that trend line is wrong. 14 Q Now did you find an empirical relationship between the

15 last two trends that you showed us the increasing propensity to 16 sue and the decreasing settlement amounts? 17 A This is a common outcome. In general for the debtors and

18 specifically that statistical connection is very, very small. 19 Theres a correlation coefficient of about .9 and .9 is -- you 20 almost never see anything that high so that -21 Q Tell me what that means. Correlation efficient --

22 coefficient .9. 23 and a half. 24 A

Tell me what that means in less than an hour

Ill try two short answers and see if these work in The first is more statistical which says if you

25 combination.

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1 square the correlation coefficient it tells you how much of the 2 movement youre explaining. So .9 squared is about .8. So

3 its telling you that 80 percent of the movement, and you could 4 say it in either direction, you could say 80 percent of the 5 movement in the average settlement amount is explained by 6 movements in the propensity to sue, you could say that the 7 other way, the statistical relationship works in both 8 directions, you know, and 20 percents not. 9 So thats one way of thinking about it that its

10 taking care of 80 percent of the observed movements could be 11 explained by the other in a statistical relationship. To get a

12 sense of the magnitude the -- something like the price of crude 13 oil into the price of gasoline is substantially lower than .9. 14 So one of these does a better job statistically. The

15 propensity to see whos doing a better job of predicting in 16 these eight years the average settlement amount in the price of 17 crude oil is doing and predicting the price of gasoline. 18 Q So maybe we should all stop worrying about the price of No?

19 oil and gas prices going up. 20 A 21 Q Other way. Ah, okay.

Theyre both doing a really good job. So based on your experience and your review of

22 other asbestos claims experiences, was this a relationship that 23 was unexpected or expected? 24 A This is the typical outcome and were dealing here with

25 two defendants, the debtors who used to see very few claims in

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Mullin - Direct/Evert 1 the 1990's and then saw a large increase in the number of 2 mesothelioma claims filed against them. 3

269

And the typical pattern is initially you see a small

4 number of claims that have particularly good cases against a 5 defendant. So they are the claims that have less alternative

6 exposure, longer periods, longer durations of exposure to a 7 particular defendant. And as time evolves cases that have less

8 exposure and greater amounts of alternative exposure come on 9 and start naming the debtor, naming any given defendant. 10 And so you typically see claim values start

11 relatively high on a per claim basis and then come down when a 12 defendant first goes through that kind of an evolution. 13 Q 14 A Is that consistent with economic theory? Its very consistent with the economic incentives. I mean

15 if you take the extreme of plaintiffs whose only exposure is 16 Bondex, you know, to the Reardon line products, if thats their 17 only exposure, if theyre going to file a lawsuit they have a 18 very strong economic incentive to name Bondex. So youre going

19 to see those strongest claims have the greatest economic 20 incentive to pursue it and then, you know, through time as the 21 case gets more established or as different economic incentives 22 get in place you tend to see an expansion in the growth of 23 claims and the additional claims arent quite as strong in 24 terms of product identification, duration of exposure, 25 quantity, and alternative exposure.

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Mullin - Direct/Evert 1 Q Now all of this data that we have just looked at was --

270

2 was it apparent simply from the claims database?

Was this or

3 was your background sample necessary to reach the point we have 4 now? 5 A I mean the demonstratives weve gone through are all So those are things one could

6 tabulations off that database.

7 just, you know, go into the database, write a little piece of 8 computer code and youre going to get these tabulations out. 9 Q And so would these have been the types of calculations

10 that you performed early in your analysis? 11 A Correct. I did this relative early. I mean probably

12 looking at it on a fiscal year basis.

I wasnt aware of the

13 fiscal year initially so, you know, once I learned what it was 14 I switched to that frame work. 15 Q Okay. Now we talked a little bit before about the claim Was it roughly after these

16 sampling and the like that you did.

17 kinds of analysis that you started then to analyze the claims 18 sample information that you had gotten? 19 A Well we asked for that largely to explore some of these

20 issues, to see -- and based on my experience I have very many 21 what I think of as good hypotheses for what would be going on 22 because I had done this with a number of different defendants 23 data in the past. So based on that I was able to frame

24 questions and design a sample to go see whether those 25 hypotheses held true here or not.

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Mullin - Direct/Evert 1 Q So how did you compile this information?

271 You said you got

2 claim samples from 1250 claims, all the verdict information. 3 What did you do with all that information? 4 A So in my initial work I had approximately 1,000 claim

5 files and at the time we received them we were aware of the PIQ 6 process that was going on and I wanted to collect data from the 7 historical claims in a manner that would allow me to align it 8 with what was coming in from the PIQs. 9 So we had a relatively large team of people who went

10 through all the underlying documentation that was provided 11 about the underlying claims and their job was really just to 12 factually record what was there. Their job was not to

13 interpret that data, their job was to get that data which 14 frequently came not technically as paper but as answers to 15 interrogatories, depositions and extract from that peoples 16 work histories, you know, the other defendants that were named 17 in lawsuits, you know, the information that was comparable to 18 what was being solicited in the PIQs. 19 Q And did I understand what you just said? You did this in

20 an effort to try to compare, to be in a position to compare and 21 contrast the PIQ data from the historical data? 22 -23 A Correct. I mean one of the things I was going to need to Is that what

24 do was value the pending claims and to value the pending claims 25 I wanted to be able to see for the pending claims how similar

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Mullin - Direct/Evert 1 or dissimilar were they from the historical result claims. 2 having the data collected in similar formats makes that 3 comparison much simpler. 4 MR. EVERT:

272 So

Your Honor, at this time just to go ahead

5 and handle this administrative matter we would formally move 6 the admission of Debtors Exhibit 18 which is the Logan PIQ 7 database and all its forms and I think thats without 8 objection. 9 10 11 12 13 14 15 16 17 18 MR. SHEPPARD: MR. EVERT: I believe that was in wasnt it?

We put the database in. Oh.

MR. SHEPPARD: MR. EVERT:

This is the PIQ database. Oh.

MR. SHEPPARD: MR. EVERT:

This is the -No objection, Your Honor. No objection. Im sorry, 18?

MR. SHEPPARD:

UNIDENTIFIED SPEAKER: THE COURT: MR. EVERT:

One second.

18, Your Honor, which is the Logan

19 database which compiled all of the PIQ information. 20 21 22 second? 23 24 MR. EVERT: Certainly. Your Honor, just this doesnt affect THE COURT: All right. Its admitted.

MR. SHEPPARD:

Mr. Evert, may I interrupt one

MR. SHEPPARD:

25 the admissibility or the evidentiary issue, but I just want to

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Mullin - Direct/Evert 1 note for the record that there are certain confidentiality

273

2 agreements that the parties have with regard to that PIQ data 3 and as I understand it the court order as well. 4 5 6 THE COURT: Okay. Thank you.

MR. SHEPPARD: MR. EVERT:

Thank you.

Your Honor, I think Im going to reach a

7 pretty good breaking point with Mr. Mullin -- with Dr. Mullin 8 in just a minute and so we probably should elaborate on that 9 maybe at the end of the day just for I think to get all the 10 confidentiality things straight on the PIQs. 11 12 13 14 Honor. 15 THE COURT: Okay. Well defer that until the witness THE COURT: MR. EVERT: All right. That would be my suggestion. Yeah, I think that makes sense, Your

MR. SHEPPARD:

16 is excused for the day. 17 18 Q 19 them. MR. EVERT: Thank you, Your Honor.

So lets talk about the PIQs, Dr. Mullin, since you raised So tell me about the PIQ information and how it was also

20 captured. 21 A On average it was a little easier than the historical I mean some of them came as, you know, how they A small set

22 claim files.

23 got submitted by the claimants or their attorneys.

24 of them actually filled out the whole PIQ for us so on those we 25 were just able to take their responses.

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Mullin - Direct/Evert 1 For many of the PIQs we actually received similar

274

2 thats more like a claim file in that their responses to the 3 questions were see attached documents. And the attached

4 documents frequently were the exact same types of things that I 5 would traditionally rely on in a claim file like answers to 6 interrogatories, depositions, complaints, releases. That type

7 of information was submitted in document form and then we had 8 to go through those documents and populate the tables. 9 Q And was that information entered into the same or a

10 similar database to the one you compiled for your claims sample 11 and other information? 12 A 13 Q Correct. And that enabled you to then run -- write code and run

14 reports on the data in both of those databases, is that right? 15 A Right. That allowed me to make in effect direct

16 comparisons on various characteristics between the pending 17 claims and the historical claims. 18 Q And when you were able to do that, at least when you were

19 able to look at the historical data at a minimum, what -- did 20 you find anything in the data that initially led to your next 21 steps? 22 A What was very clear to us when we went through the data

23 was for a couple jurisdictions there was a different resolution 24 strategy being employed and we subsequently learned through 25 asking questions that these large inventory or docket type

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1 resolutions that were done in -- with three plaintiff law firms 2 in particular versus the rest of the world. You know those

3 three were handled in a different manner and you really needed 4 to analyze them differently than the remainder of the claims. 5 6 Q MR. EVERT: May I approach, Your Honor?

Dr. Mullin, I have handed you what is Debtors If you would tell me what that

7 Demonstrative Exhibit 15.

8 illustrates and then we can talk about it. 9 A So were back to fiscal years, dated by the fiscal

10 settlement years, and what this is looking at -- I said 11 previously I really divided claims into four categories, I 12 looked at dismissed claims, I looked at claims that were 13 settled for $50,000 or less, those are labeled here as 14 low-value, I had claims that were for more than 50,000 but not 15 exceeding 200,000, those were the mid-value claims, and then 16 claims for more than $200,000 and those are the high-value 17 claims. 18 And this is a graph thats looking at only the

19 individually evaluated claims and Im using that term for 20 everything that wasnt one of these inventory docket agreements 21 with one of the three plaintiff law firms. 22 Q Wait. Let me stop you there. And we heard some about

23 these this morning from Mr. Tompkins and of course you were 24 here for that. 25 A The three law firms were which three firms?

Simmons, Lanier, and Cooney.

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Mullin - Direct/Evert 1 Q

276

And how many of those settlements -- do you know how many

2 settlements youre talking about, not in terms of number of 3 cases, but individual settlements? 4 referenced this morning. 5 A I think it was 17 was

Does that sound right? So we had

Oh, in terms of the number of inventory deals.

6 the documentation on 17 of those inventory deals.

There may

7 have been more than that that we lacked the documentation on, 8 but those are the ones for which we had the documentation of an 9 inventory deal. 10 Q And when you say documentation youre referring to the

11 types of settlement agreements which were showed to the Court 12 this morning in Mr. Tompkinss testimony? 13 A Correct. Similar to the three agreements that were shown

14 this morning. 15 Q All right. And so when you used the term individually

16 evaluated, what you are saying if I understand you correctly 17 that these are all of the debtors claims in every jurisdiction 18 except for those of the three law firms? 19 A Do I have that right?

Its really except for those that are documented in those

20 17 deals so -21 Q 22 A Oh, so those three law firms are included? Those three law firms are included in here. Really from

23 2007 forward those three law firms dont have individually -24 they dont have settlements outside of those deals. If I go

25 back and I look at 2003 and 04 and 05 you will see some

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Mullin - Direct/Evert 1 settlements with those three law firms. 2 Like I said I cant tell by looking at the data

277

3 whether those were docket deals for which I just dont have a 4 settlement agreement that informs me of that or if they were 5 truly individually evaluated claims. 6 in this exhibit. 7 Q All right. So this exhibit does not include those cases But they have been left

8 or claims that were within the 17 documented settlements with 9 Simmons, Lanier, and Cooney that you have described. 10 A 11 Q 12 A 13 Q Correct. All right. These cases are everything else.

Thats right. All right. And what is the import of the graph and its

14 shape? 15 A Well what this really tells me is I look at the last four

16 or five fiscal years on this graph and when looking at the 17 individual claims theres been a very stable number of the low, 18 mid, and high-value claims. Those have been stable. You can

19 see theyre basically flat lines going across. 20 The one line that grows as you go through this is So as the propensity to sue has risen, at least

21 dismissals.

22 for the individually evaluated claims, what you see offsetting 23 that is just more dismissals. 24 So as we said we had a propensity to sue on something We

25 of the order of 25, 20 to 25 percent growing to 40 percent.

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Mullin - Direct/Evert 1 see here the number of dismissals going from 250 to pushing 2 500. So its -- this helps you reconcile whats going on of

278

3 why do you see a rising propensity to sue but not observe an 4 increase in the settlement amounts? One of the reasons for

5 that is those additional claims, as theory would tell you they 6 should be weaker, you know, not have a strong cases and 7 practice, you know, onto stronger claims and result in many, 8 many more dismissals. 9 And so thats one of the reasons we arent seeing a

10 rise in settlement commitments when the propensity to sue 11 rises. 12 Q I want to make sure I understand the categorization of the Your high-value, mid-value, and low-value claims, does

13 claims.

14 this result from an analysis of the claims themselves or an 15 analysis of the settlement of those claims? 16 A This is based upon the amount the claim is actually, you

17 know, what was the documented settlement amount, you know, is 18 this categorization. 19 Q So if it was a claim that settled for between or above

20 $200,000 in the debtors historical database and it was not one 21 of the 17 Simmons, Lanier or Cooney groups, it would be in the 22 sort of a black line I guess? 23 A 24 Q 25 A Correct. And what was mid-value again? Mid-value is more than 50,000 and not exceeding 200,000. Im not sure.

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Mullin - Direct/Evert 1 Q 2 A And low-value? Is 50,000 or less but not including zeros.

279

So they were

3 paid but no more than $50,000. 4 Q And at this point in time you have only reviewed the

5 claims from a dollars perspective and not yet from the 6 characteristics of the claims perspective, is that right? 7 A Thats correct. This is purely a categorization based on

8 settlement amounts that were committed, not based on any 9 underlying claimant characteristic. 10 Q 11 A 12 Q The left axis is number of claims, is that right? Correct. So for example in fiscal year 2007 was the peak of the

13 dismissals, that roughly 500 claims were dismissed without 14 payment? 15 A 16 that. 17 Q All right. And the low-value, mid-value, and high-value Correct, thats probably around 550 claims, something of

18 lines and their straightness that Ill use a technical term 19 that Im sure a statistician would be excited about, what 20 meaning does that have? 21 A It really is for the past four or five years before the I mean so you see in

22 petition date these had stabilized.

23 contrast if you look at the earlier years theyre moving a bit 24 which is also fairly common when you look at defendants who see 25 a large change in the number of claims that theyre facing,

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280 1 its common for them to go through a transitional period thats 2 relatively volatile and then it stabilizes after that. 3 And so this is really saying where before although

4 total expenditures were stable at around 50 million from 2003 5 to 2010, the underlying dynamics dont appear that stable from 6 2003, 04, 05, 06. And it says then the underlying dynamics

7 appear to have more stabilized with a relatively constant 8 number of claims in each of these categories for the last four 9 fiscal years. 10 MR. EVERT: Your Honor, its 5:35 and I have reached If it would

11 sort of a natural stopping point with Dr. Mullin.

12 be acceptable to the Court to adjourn his testimony now and 13 then well pick up with others in the morning? 14 THE COURT: Thats fine. Dr. Mullin, because youre

15 not going to be excused as a witness you cant discuss your 16 testimony with anyone in the interim. 17 awhile until youre back on the stand. 18 19 20 evening. 21 22 THE WITNESS: THE COURT: Thank you. THE WITNESS: THE COURT: I understand. Youre excused for this I realize it may be

All right.

With respect to if I may ask a

23 housekeeping matter. 24 25 MR. EVERT: THE COURT: Certainly, Your Honor. If I could move these binders that you

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281 1 people think are not going to be exhibits that youre going to 2 use I might have a better shot at seeing the witness without 3 having to stretch quite so much. Would it be a problem if I

4 moved the Courts set of exhibits and keep only the set that 5 you expect to use and then Ill put them on the floor over 6 here. 7 8 9 10 Any problem from anybodys -MR. EVERT: THE COURT: Your Honor, well be glad to help. Okay. Absolutely, Your Honor. Okay. You wanted to address

UNIDENTIFIED SPEAKER: THE COURT: All right.

11 Exhibit 18. 12 MR. EVERT: Your Honor, I think -- which is the

13 confidentiality issues on the PIQs and I think we just want to 14 make sure that were not running afoul of the Courts orders in 15 regard to the PIQs and sort of the various orders involving 16 confidentiality of the proceedings. 17 The PIQs have information in them that the ACC and

18 the FCR have wanted to keep confidential throughout and so I 19 think what weve done at this point is submitted the Logan 20 database but I believe its encrypted. So at some point were

21 going to have to provide instructions to the Court should the 22 Court want to get in there as to how to get in there. 23 But I think as long as its encrypted weve

24 maintained the confidentiality issues that we were concerned 25 about. Is that -- have I got that right?

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282 1 MS. RAMSEY: Yes, Your Honor. And the other issue

2 that well need to address but I suggest that we speak outside 3 the -4 5 6 Apologies. COURTROOM DEPUTY: MS. RAMSEY: I cant hear you, Ms. Ramsey.

Oh, Im sorry, I thought my mic was on.

The other issue that we need to address but we can

7 confer and then report back to the Court tomorrow morning is to 8 the extent that individual PIQs are the subject of testimony or 9 questioning here, how to maintain the confidentiality of the 10 individual who completed that PIQ in a manner consistent with 11 the Courts orders and the agreements of the parties up to this 12 point. And I believe given the limited number of PIQs that are

13 identified on each of our lists that well be able to reach 14 appropriate agreements to maintain that. 15 THE COURT: Okay. That I think is easy. We can

16 delete the names.

You can give me an index to the extent the

17 names are relevant to something and delete the name and, you 18 know, John Smith the first one can be A and Joe Smith the next 19 one can be B and so forth. I dont -- I mean the names arent

20 going to be meaningful to anything Im doing. 21 MS. RAMSEY: Well the question I guess, Your Honor,

22 was whether to submit those exhibits under seal and just have 23 the personal identifying information blacked out for purposes 24 of the testimony here or whether to actually submit redacted 25 copies that could be put on the public record. And we just

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283 1 hadnt had that dialogue. 2 3 4 5 THE COURT: Whichever. Right.

UNIDENTIFIED SPEAKER: MS. RAMSEY: MR. GORDON: Okay.

Thats fine.

Yeah, I feel confident, Your Honor, we

6 can work it out. 7 information.

I think the issue is the individualized

Its not the aggregation thats been done by a

8 lot of the experts but there are some examples I think and the 9 like that Ms. Ramseys referring to and we get that and well 10 work together on that to figure it out. 11 12 MS. RAMSEY: THE COURT: Okay. Yes, I dont think the personal

13 identifier information is going to be relevant to anything Im 14 doing and if it is youll let me know and I can make some other 15 ruling. But I dont see why that information has to be spread

16 on the public record. 17 MS. RAMSEY: No. And the only other area that was

18 subject to sensitivity and again I think we can work out an 19 appropriate mechanism to maintain confidentiality is to the 20 extent that in the aggregate conclusions were being reached by 21 the experts with respect to categories that would reveal 22 practices of certain law firms, you know, and so forth in the 23 aggregate that that was another area of sensitivity. 24 THE COURT: Okay. Is there going to be testimony

25 along those lines?

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284 1 MS. RAMSEY: Not that we would expect to present,

2 Your Honor, but I dont know whether or not Dr. Mullins 3 testimony would get into that area. 4 MR. GORDON: Well weve been talking about these

5 docket settlements.

That seems like that wasnt an area of Im not sure I can

6 sensitivity so we can talk more about that.

7 think of anything sitting here that would be an issue from that 8 perspective but we can talk about that. 9 THE COURT: Yes, I dont think the docket settlements If

10 themselves at this point have anything to do with that.

11 youre talking a particular business practice or strategy and 12 that has to come off I think that should be kept confidential. 13 14 MR. GORDON: THE COURT: Right. But Im not sure why at this point that

15 would be the subject of testimony. 16 MS. RAMSEY: I think thats where the line is, Your

17 Honor, and the question is there is -- there are some 18 conclusions that Dr. Mullin reaches that are close to that 19 line. 20 21 THE COURT: MS. RAMSEY: All right. And again I feel confident we can work

22 out some mechanism to protect those kinds of sensitive 23 information. 24 25 THE COURT: MR. GORDON: All right. And I think the only other issue that

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285 1 weve had, Your Honor, is part of the discovery process the 2 debtors had agreed to turn over documents to the other side 3 that in fact are privileged documents and we did that with an 4 understanding -- and what Im referring to primarily are case 5 -- pretrial documents, case evaluation documents that contain 6 communications between the debtors and their counsel about 7 certain cases and the settlement and strategy with respect to 8 certain cases. 9 And since those matters went to the issues, theyre

10 coming up in connection with estimation, we were willing to 11 turn them over subject to an agreement that we werent waiving 12 privilege which agreement was accepted by the other side. 13 But some of those documents or many or all of those

14 documents are on the exhibit list and so were going to have to 15 also talk to the other side about how to preserve 16 confidentiality there because those are documents that the 17 debtors dont really want being out in the public domain since 18 they are clearly privileged documents. 19 THE COURT: All right. Well those documents perhaps

20 can be put under seal.

I guess the issue is whether somebody

21 is going to testify about them. 22 23 24 25 MR. GORDON: THE COURT: MR. GORDON: THE COURT: Right. So if theres no testimony about them -Agreed. -- I dont think putting them under seal

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286 1 is a problem. If theres going to be testimony youll have to

2 work something out. 3 4 MR. GORDON: Right. Your Honor, what we have done at least

MR. SHEPPARD:

5 on our set with regard to these documents is is that weve been 6 blacking out in much the same fashion the personal identifying 7 information. I know that doesnt solve the privilege issue,

8 but were certain that, you know, having these things under 9 seal would be one way to do it. 10 We also think, Your Honor, you know, by Friday we

11 will have established, you know, a pretty limited universe of 12 these documents in terms of what ultimately may be in the 13 record or need to be in the record. 14 that out. 15 THE COURT: Okay. Well Im sure if you cant Ill So Im certain we can work

16 hear from you. 17 18 MR. SHEPPARD: MR. JACKSON: You will. Your Honor, Mr. Weathersby has given me

19 the official count for the day so I thought Id just let 20 everybody know what the chess clock has reported. It has

21 debtors using three hours and 49 minutes and the combined 22 ACC/FCR number at two hours and 39 minutes. 23 24 25 so far. THE COURT: Okay. -- were an hour and ten minutes ahead So were --

MR. JACKSON:

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287 1 THE COURT: All right. Thats good. And I dont

2 think we even used a half an hour for objections although 3 probably I spoke that long so. 4 MR. EVERT: Well I think too, Your Honor, the good

5 news is thats six and a half hours and we were sort of 6 shooting for seven so were actually I think on time for the 7 week so thats good. 8 THE COURT: All right. Is 8:30 agreeable as the

9 start time again tomorrow? 10 11 UNIDENTIFIED SPEAKER: THE COURT: Okay. Yes, Your Honor.

And you folks recall that on

12 Thursday I will have to take a recess at 9:00 until I meet with 13 my class for a few minutes so we will probably have a recess 14 from nine until 9:15 or 9:20 as soon as I can get back that day 15 so youll need to make whatever adjustments that day. 16 17 18 19 20 21 22 23 24 25 UNIDENTIFIED SPEAKER: UNIDENTIFIED SPEAKER: THE COURT: All right. We will. Well do. We are in recess until 8:30.

THE ATTORNEYS:

Thank you, Your Honor. * * * * *

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288 C E R T I F I C A T I O N We, KAREN DeLUCIA and JANET D. PERSONS, court approved transcribers, certify that the foregoing is a correct transcript from the official electronic sound recording of the proceedings in the above-entitled matter, and to the best of our ability.

/s/ Karen DeLucia KAREN DeLUCIA

/s/ Janet D. Persons JANET D. PERSONS J&J COURT TRANSCRIBERS, INC. DATE: January 17, 2013

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