February 5, 1998

I am Steven Kazan, a lawyer with the firm of Kazan, McClain, Edises, Abrams, Fernandez, Lyons & Farrise in Oakland, California. As the Committee can tell from my attached curriculum vitae, much of my practice is devoted to representation of asbestos victims and has been for almost 25 years. I appreciate your invitation to appear today to discuss the proposed tobacco settlement, and in particular, its impact on asbestos victims.

In addition to my role as a plaintiffs' lawyer representing victims in suits against asbestos companies, I am Class Counsel in Ahearn v. Fibreboard (Fibreboard Global Settlement); a member of the Asbestos Victims' Creditors' Committees in the Amatex, Celotex, and H.K. Porter bankruptcies; a member of the Trustees Advisory Committee to the Celotex and Amatex Victims Creditors' Trusts; and a member of the Plaintiffs' Steering Committee in the Asbestos Multi-District Litigation pending in the U.S. District Court in Philadelphia. I am a member of the Asbestos Litigation Group, 1975 to the present, and I chaired the national Plaintiffs' Asbestos Litigation seminar from 1985-1991. (My curriculum vitae is attached as Exhibit A.) I serve as counsel to the Asbestos Victims of America as amicus in various appellate cases.

I am also serving as co-counsel to the Manville Personal Injury Settlement Trust in its lawsuit seeking contribution from the tobacco companies. The Trust, successor to all of the asbestos liabilities and some of the assets of the bankrupt Johns Manville Corporation, exists solely to pay asbestos victims compensation for what Manville owed them in compensation for their injuries. I regret to report that, because of the inadequacy of its assets, the Trust can pay only ten cents on the dollar of its admitted liabilities. It has more than $6 billion in unpaid obligations to date, and anticipates an additional $20 billion shortfall.

The impact of the proposed tobacco settlement on asbestos victims, in fact on all the parties to what has been rightly called "our national asbestos litigation crisis," is both unique and devastating. For a while last summer, big tobacco sought to stampede Congress into a rush to judgment on that proposal. I was afraid that Congress would not have the opportunity to examine the very clever stratagems that the tobacco companies crafted, in that so-called settlement, to escape the asbestos liability that they have long feared. I was afraid no one would notice that it would make our existing, grossly inadequate system for compensating asbestos victims far worse. Your invitation to appear today leads me to believe my fears will not be realized.

A Coalition -- And a Proposed Solution

The proposed settlement's connection to asbestos litigation is, in fact, so outrageous and so destructive that it has led to one of the most remarkable turns of events that I have witnessed in my quarter century of involvement in this issue. The impending disaster has spurred representatives of victims' groups, unions that represent asbestos workers, asbestos trusts, and asbestos defendants to come together, negotiate a proposed solution, and jointly present it to Congress for your consideration.

This testimony is our first opportunity to explain this proposed solution to Congress and answer questions about it. I attach separate statements by some of the members of our informal coalition, briefly commenting on our joint proposal from their points of view and affirming their support for it. The statements come from the International Association of Heat and Frost Insulators & Asbestos Workers, the Asbestos Victims of America, and the Alliance for a Fair Tobacco Settlement (the latter a group of asbestos trusts and defendants).

We have devised an alternative mechanism for Tobacco to meet its responsibilities to those involved in the "tobacco-asbestos crisis." It is a mechanism that both avoids litigation and devotes all proceeds, even those that would otherwise belong to the asbestos defendants as "third party payors," directly to the relief of victims. It provides the tobacco companies the limited tort immunity they seek -- but it does so only in exchange for their fair share of compensation in an alternative system that is better for victims.

I want to emphasize four essential preliminary points about our proposal.

First, while its impetus was the threat posed by the immunity provisions of the proposed global tobacco settlement, that is not its core rationale, and the proposal is not contingent upon the inclusion of broad immunity, covering "non-asbestos" cases, in any tobacco legislation. Instead, the special plight of asbestos victims who smoked represents one of the nation's most pressing smoking-related public health and welfare issues, and it should be dealt with in any tobacco legislation for that reason. Moreover, the staggering backlog of asbestos cases into which tort claims for asbestos-tobacco victims would have to be interjected, and the asbestos litigation system's other unprecedented failings, demonstrate that the tort system is uniquely unsuited to providing timely and adequate relief to the great bulk of asbestos-tobacco victims. Indeed, the coming flood of tobacco litigation into asbestos litigation will make the existing asbestos litigation crisis far worse, unless Congress acts.

Second, our proposal does offer targeted immunity to tobacco companies from their tort exposure arising from the "tobacco-asbestos" problem, but it does so on the only in exchange for payments that meet their obligations in a different and far more efficient fashion. In other words, immunity granted under our proposal would be justified because the victims and the "third party payors" see it as a better way to resolve Tobacco's responsibilities to them. The third party payors involved -- the asbestos trusts and defendants -- would give up their rights to proceed against Tobacco in the tort system in exchange for funds that could be used exclusively to pay victims. Victims would have the option of giving up the right to proceed in the tort system against tobacco companies in exchange for compensation paid through an alternative "administrative-like" mechanism that is less wasteful and more prompt.
We understand why the tobacco companies prefer last year's deal -- they get the immunities and pay nothing to the asbestos trusts, defendants and victims in exchange. But fair legislation would require that they meet their huge responsibilities within our nation's tobacco-asbestos crisis, not simply absolve them of that responsibility.

Third, our proposed solution -- unlike either the proposed global tobacco settlement or its rejection, which would leave it all to an unmodified tort system -- is entirely consistent with the proposed legislative approach to the asbestos crisis that was submitted to this Committee by the Judicial Conference's Ad Hoc Committee on Asbestos Litigation. The Judicial Conference urged Congress to find ways to mitigate the waste, delay, inadequacy of awards and bankruptcies that are endemic to asbestos tort litigation.

Fourth, while enactment of our proposal would be the first legislative response to the asbestos litigation crisis, it is not simply an attempt to ameliorate the existing crisis. It is necessary to avoid a coming tobacco-caused litigation crisis that will be greatly magnified in the asbestos context. The asbestos litigation mess, in other words, is the context which greatly compounds the impact of the coming tobacco litigation explosion, but it is the onrush of pent-up tobacco litigation, caused by the breakdown of the various tobacco conspiracies of silence and suppression, that is new. The current asbestos litigation is the bus stalled on the tracks, but it is the onrushing tobacco litigation locomotive that will cause the real disaster.

Smoking and Asbestos/Causation and Liability

Causation

It is hard for those who have not been involved in the asbestos litigation wars over the last decades, or for those who are not scientist or doctors working in this area, to comprehend the enormous role that smoking-caused harm plays in what, to the uninvolved, are thought of as purely "asbestos" diseases. There has been plenty of litigation over the precise extent of smoking's contribution, in case after case, in Courts all over the country. But the indisputable essential, scientific fact is that smoking is a huge part of the asbestos litigation problem.

The contribution of smoking to asbestos-related disease is so well established that it does indeed constitute one of the clearest and most important smoking-related public health issues, an issue virtually as broad as the entire population of asbestos workers because the vast majority of these workers smoked and the rest were exposed to particularly intense second-hand smoke. Attached to this statement, as Exhibit B, is a summary I have prepared of some of the principal studies of the association of smoking with "asbestos" diseases, as well a bibliography of important publications.

One particularly acute association merits special emphasis. Attached as Exhibit C is a chart reproduced from the 1985 Surgeon General's report, The Health Consequences of Smoking:
Cancer and Chronic Lung Disease in the Workplace. It shows that asbestos workers who
smoked a pack a day or more are eighty seven times more likely to die of lung cancer than the general nonsmoking public, which is eight times more than other smokers, and seventeen times more than nonsmoking asbestos workers.

Liability/Past Litigation

In most asbestos litigation to date, the chief issue with respect to smoking-caused harm was how much of it would be borne by the smoker because of the "personal choice" defense (comparative fault or contributory negligence) and how much would be borne by the asbestos defendant under various legal theories (of joint or concurrent causation, "joint and several" liability, or otherwise shared or alternative liability). There are two principal reasons why tobacco companies were absent from these cases and escaped liability. The first is that the tobacco companies hid the crucial evidence. The second is their scorched-earth defense tactics.

1. Document Suppression and Release

The tobacco companies made ingenious use of attorney-client privilege to hide virtually all of the relevant evidence. Their successful suppression of the evidence made it very difficult for either an asbestos victim or an asbestos defendant to prove the tobacco companies' legal liability for the harm they indisputably caused. Judicial findings under the "crime/fraud" exception are putting an end to this suppression of evidence. The resultant document disclosures, both as to the tobacco companies' conduct in general and to their especially egregious conduct specifically directed at asbestos victims and the "tobacco-asbestos issue," will end the tobacco companies' ability to escape legal liability for their unique contribution to the causation of disease in asbestos workers. The documents will change everything.

Because asbestos workers were especially vulnerable to smoking-caused harm, because, that is, the risk to them caused by smoking was far greater than that of the average smoker, virtually all of the "smoking gun" tobacco documents will have special relevance to asbestos workers and special impact in their cases. Even more explosive, however, will be the impact of the "tobacco-asbestos" documents.

All indications are these documents will show a decades-long effort on the part of the tobacco companies, orchestrated primarily by the Committee of Counsel, to avoid being held accountable for their share of the asbestos crisis and to keep asbestos victims from becoming aware of the full extent of the special harm they faced. For example, of the eight documents recently released by a Florida court under the "crime/fraud" exception,(1) two dealt with asbestos. One of these is handwritten notes from a June 23, 1981 meeting of the Committee of Counsel that reflects a discussion of the fact that the "individual must appreciate the risk" and of two special problems for the tobacco companies with respect thereto: "asbestos workers and pregnant women."

Available documents also show that the tobacco companies created separate computer codes to keep track of their asbestos documents and amassed what appears to be one of the world's most extensive libraries on the connection between smoking and asbestos. Similarly, the professionals engaged in hiding the facts from asbestos victims were ready with a widely published disparagement of the Surgeon General's 1985 report on the day it was issued, calling it essentially a political document . . . designed to shift the focus from workplace hazards to life styles, thus raising questions about the obligations of employers to maintain clean workplaces."(2)

It will take some time before all of the tobacco-asbestos documents are released, digested by the asbestos bar, and can begin to have their revolutionary effect on smoking-related issues in asbestos litigation. In the meantime, Congress should accept no assertions from Tobacco about its lack of culpability in asbestos cases unless the tobacco companies promptly turn over these documents to Congress. In fact, Congress would be doing a great service to asbestos victims in their efforts to achieve justice, as well as to itself in its effort to write fair tobacco legislation, if it were to demand that the tobacco companies promptly turn over to it all of the asbestos documents, beginning with all memoranda and notes of meetings of the Committee of Counsel dealing with the issue.

2. Scorched-Earth Defense

The second reason that tobacco companies have been absent from asbestos cases is the tobacco companies' scorched-earth defense tactics. These were especially effective in asbestos cases since there were other defendants available. Tobacco's scorched-earth defense in asbestos cases is clearly illustrated in the increasingly infamous R.J. Reynolds document concerning winning asbestos litigation by making "the other son of a bitch" spend all of his money. A copy is attached hereto as Exhibit D.

While that line has been quoted in court decisions, it was only upon its release on the Internet in recent months that we realized that memo was about asbestos cases. It is part of a document in which Reynolds' chief outside lawyer is crowing about his success in getting a California plaintiffs' lawyer to drop all of his "asbestos cases" against Reynolds. The memo cites two factors. One is the presence of asbestos defendants to pick up the tab under joint and several liability. The other is Tobacco's ability to make discovery prohibitively expensive, especially for a "sole practitioner" handling a few individual cases.

Well, I am a small-firm, California plaintiff's lawyer who usually brings his asbestos cases one at a time. While I am not the plaintiff's lawyer referred to in the document, I know him well; he is my friend and colleague, John Robinson. And he is no "SOB;" in fact, he is a former asbestos insulator disabled by asbestosis who went on to become a lawyer so he that he could represent his friends and co-workers. Those cases were filed across the street from my office in the courthouse where I file my cases. I was in court and watched the scorched-earth strategy play out day-after-day, week-after-week, month-after-month, as squadrons of tobacco lawyers filled the asbestos complex litigation coordinating judge's courtroom to argue over everything ad nauseam.

I cite the scorched-earth defense tactics not just to explain one reason tobacco companies were excluded in the past from asbestos cases, but also to explain why including them in the future is not the best way to resolve their legal responsibilities to asbestos victims. The huge backlog of asbestos cases, as the Judicial Conference report details, is due in part to the fact that asbestos cases are already too complex and already overwhelm the ability of courts to deal with them. Can you imagine what these cases will be like when, as a consequence of the documents, a whole new class of tobacco defendants are joined, with their only goal to win by making "the other son of a bitch spend all his [money]"?

Three Alternative Routes

Judge Reavley, Chairman of the Judicial Conference Ad Hoc Committee on Asbestos Legislation, submitted a report on the asbestos crisis to this Committee during an immensely revealing three days of hearings conducted by the Committee in 1991 and 1992. This Committee's report, Asbestos Litigation Crisis in Federal and State Courts: Hearings Before the Subcomm. on Intellectual Property and Judicial Administration of the House Comm. On the Judiciary, 102d Cong., 1st Sess. (1991), 2d Sess. (1992) (hereinafter Hearings: Asbestos Litigation Crisis), is most worthy of a second look; its relevance to the issues before the Committee with respect to tobacco liability is striking. Virtually every page of that document amounts to both a condemnation of the proposed tobacco settlement as it relates to asbestos and a ringing endorsement of the principles of the alternative solution recommended by our coalition.

By way of example, the Judicial Conference report, in its conclusion, recommended two alternative approaches to Congress to deal with the asbestos litigation crisis. The first involved making asbestos-related compensation less wasteful and slow by incorporating administrative-type streamlining of claims processing, while the second alternative recommended methods of streamlining and simplifying the processing of asbestos cases. Id. at 381. I urge the Committee to evaluate the three basic options before it in light of those recommendations.

1. The proposed global tobacco settlement - It would wipe out a huge potential asset of asbestos defendants and trusts -- their third party payor suits against tobacco companies; it would further damage asbestos defendants by permanently transferring to them much of tobacco's share of the problem; and it would greatly complicate asbestos cases by saddling them with the special, and especially inefficient "tobacco tort rules" that the global settlement would create. This was clearly deliberate. One of the settlement proponents testified before the Senate Judiciary Committee in July 1997 that the Attorneys General and the Tobacco lawyers set out to protect the tobacco companies' assets from the asbestos defendants and their insurers.

2. Leave it to the tort system - Resolving the exploding issue of tobacco company liability to asbestos victims by injecting tobacco companies into asbestos court cases will further complicate and delay them, to an almost unthinkable extent. It is no solution at all, although it is preferable to the proposed global settlement.

3. Coalition proposal - By contrast, the coalition's alternative resolves the issue of tobacco companies' responsibility in asbestos cases in an expeditious and equitable manner that does not further complicate or delay asbestos cases. In fact, by removing the issue of smoking-caused harm from them, and by providing substantial additional funds to asbestos defendants and trusts that can be used only to resolve asbestos cases, it will greatly improve the existing situation. It will increase the incentives for settlement in pending and future cases, and secure fair and reasonable compensation efficiently.

The Proposed Global Tobacco Settlement

The proposed global tobacco settlement causes unique harm to the rights of asbestos victims and defendants. This unique harm, ultimately, derives from the unique relationship of smoking to asbestos disease, from the extraordinary "synergistic" and "joint"causation, resultant "joint" liability of various sorts, and the existence of the litigation impasse known as the "asbestos litigation crisis." Below, I will briefly describe the three unique impacts of the tobacco settlement on the parties to asbestos litigation.

1. The End of Third-Party Payor Suits

By effectively extinguishing the rights of "third party payors" to sue tobacco companies for reimbursement of amounts they have paid in the past and will pay in the future as a result of smoking-caused harm,(3) the proposed global tobacco settlement wipes out an enormous potential asset that could be used by asbestos trusts and defendants to pay victims of tobacco and asbestos.

In a patent conflict of interest, the attorneys general agreed to wipe out these and other third-party payor suits in exchange for over $190 billion dollars to be paid to their states for their own third party suits. Their suits, brought on behalf of state taxpayers, sought recovery for the higher costs that state Medicaid plans have paid as a result of smoking-related diseases. To get this money they gave up rights of those not represented in their negotiations.

But, the third party suits of asbestos defendants and trusts are stronger as a matter of law and more compelling as a matter of policy. The primary basis upon which the asbestos defendants and trusts have paid tobacco's share of liability, joint and several liability, makes little sense and is very unfair without the concomitant right to seek contribution from tobacco companies in a "contribution" suit.

Moreover, while the harm to state taxpayers has been very widely spread, the harm to the asbestos trusts and defendants has been very concentrated, to the point that it has caused great "consequential" harm, including bankruptcy. Of course, the state taxpayers have an alternative remedy; the power to tax cigarettes. The asbestos defendants and trusts have only one remedy-- their tort law right as third party payors to seek contribution and indemnity. Finally, the money that the states receive in settlement of their third party claims will not go to Tobacco's victims. It was their often fatal injuries which are the basis for the states' fiscal harm. By contrast, all of the money received by the asbestos trusts and defendants, under our proposal, will go solely to victims -- to asbestos workers who were harmed by exposure to cigarette smoke.

2. Transference of Liability

Once immunity is granted to tobacco companies, the various forms of joint or alternative liability as between asbestos defendants and tobacco companies for smoking-caused harm in asbestos workers serves to transfer both litigation and liability to the asbestos defendants and trusts. So too with the various procedural advantages tobacco companies will get (see §3, below). As an asbestos plaintiffs' lawyer, this phenomenon -- though clearly unfair -- would not be of tremendous concern to me or my clients but for an unalterable fact of asbestos litigation -- many asbestos manufacturer defendants are already bankrupt and most of the remaining solvent defendants already have insufficient cash flow to promptly settle the enormous backlog of claims against them. In other words, this "transference" phenomenon is another way that the "asbestos crisis" and the plight of asbestos victims will ultimately be made worse.

3. Litigation Complexities

The proposed global tobacco settlement creates a special class of rules for "tobacco torts." These include the bars to class actions, consolidations, and "addiction/dependence" claims. Inevitably, these rules will find themselves operating in asbestos cases -- in conflict with the "regular" rules operating in those cases. For instance, as the documents come out, I may well join tobacco defendants in my asbestos cases. If the tobacco settlement is enacted, the joinder will rule out consolidations. Further, while I will likely be able to use "addiction/dependence" claims against the asbestos defendants to defend any efforts to blame my client as negligent for smoking, I could not do so against tobacco defendants. For individual clients, this may well be the way to maximize their awards. For the overall asbestos crisis, however, it will just mean even greater complexity, waste, delay and inefficiency.

Similarly, the existence of the separate tobacco tort rules will give asbestos defendants a potentially powerful new weapon to defeat consolidations, especially in conjunction with "indispensable party" arguments. They will argue that since they have had their right of "contribution" extinguished, the only way they can keep from permanently picking up tobacco's tab is if the court will either deny consolidations in order to include tobacco defendants or force their inclusion through "indispensable party" principles, also at the price of proceeding on an individual-case-only basis and under asymmetrical substantive rules.

It is hard to think of a more destructive change in asbestos litigation. As the Judicial Conference report emphasizes, the tort system is already incapable of dispensing, in its words, "timely and inexpensive" justice for asbestos victims. As it further states:
Virtually all of the diseases associated with asbestos exposure are progressive in nature, moving from minor affliction, to disability, to death, in total disregard of the lethargic judicial machinery in place to resolve underlying claims. Indeed, the simple determination of appropriate compensation for asbestos victims often becomes bogged down as the ravages of the disease progress. Death often overtakes events with no response from the system. The committee simply refuses to accept the continuation of such a result routinely visited upon the victims of a national public health disaster.
Hearings: Asbestos Crisis, 410 - 411.

It should be unthinkable to make that situation worse.

The Proposed Solution

Our proposed solution directly addresses the additional complexity, waste and delay in asbestos litigation that will be caused either by the proposed tobacco settlement or by the flood of asbestos-associated tobacco litigation in its absence. It creates a trust, similar to the existing asbestos trusts, to pay for smoking-caused harm to asbestos workers. Trustees would include representatives of victims groups, unions whose members include asbestos victims, existing asbestos trusts and defendants and the medical profession.

The Tobacco Asbestos Trust would be divided into two funds. Fund I, which would dispense a majority of the Trust's proceeds, represents reimbursement to the asbestos defendants and trusts for amounts they have paid in the past or now owe to asbestos victims for smoking-caused harm. The asbestos defendants and trusts will release the tobacco companies from liability to them. The proceeds of this fund, nonetheless, will be available for the sole purpose of paying asbestos claims against these defendants and trusts. Accordingly, our proposal contemplates massive relief from the single most significant deficiency in asbestos-related compensation today -- insufficient assets on the part of defendants and trusts to pay claims. It contemplates, that is, a huge increase in the rate of settlement of asbestos claims and a huge decrease in the existing backlog that is denying most asbestos victims any semblance of timely relief.

Fund II will pay promptly, efficiently and equitably for the smoking-caused portion of the harm to asbestos workers with pending or future claims for asbestos related disease or disabilities, in accordance with standards and procedures established and approved by the trustees. At their option, asbestos workers could instead sue tobacco companies for smoking-caused harm, subject to whatever restrictions are enacted for all smokers. Because the Trust will be well-funded, it is presumed that few asbestos workers will take the litigation option. A worker who accesses the fund will release the tobacco companies from all liability.

The proposal does not attempt to replace the tort system for asbestos claims. Asbestos claims would proceed as before, with two important differences. First, an asbestos claimant could claim only for his asbestos-caused harm; as for his smoking-caused harm, he must look to Fund II, or sue the tobacco companies. Second, the asbestos defendants against whom he is proceeding will have access to substantial funds that can be used only to settle asbestos claims through Fund I.

The Tobacco companies' payment into the Trust would be set at $35 billion dollars. While that represents an amount far less than Tobacco's potential tort liability to asbestos victims, trusts and defendants, it is a reasonable compromise figure.

I again thank the Committee for the opportunity to submit this statement, and look forward to answering any questions the Committee might have.
Endnotes:

1. See, American Tobacco Company, et al. v. Florida, et al., 697 So.2d 1249 (Fla. Dist. Ct. of
App. 1997); Mealey's Litigation Reports, August 11, 1997, Vol. 11, No. 7.

2. See, e.g., Los Angeles Times, December 20, 1985, Part 1, p.4.

3. See S.1415, Sec. 602(e)(1)(c). (The proposed settlement was codified in S.1415, introduced by
Senator McCain for purposes of discussion and without endorsement.)