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 8, 2013 8:41 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: LATHROP B. NELSON, III, ESQ. 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 the ACC: Waters Kraus Paul By: JONATHAN A. GEORGE, ESQ. 3219 McKinney Avenue Dallas, Texas 75204 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 Future Claimants Representatives:

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. ZACHERY 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

For Honeywell:

For Bondex: Financial Advisors for the Debtors:

Interested Party:

Interested Party:

Interested Party:

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5 TELEPHONIC APPEARANCES (Contd): 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 - - -

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6 I N D E X PAGE WITNESSES FOR THE DEBTORS TIMOTHY R. COLEMAN Direct Examination by Mr. Jackson Cross Examination by Mr. Dorsey Cross Examination by Mr. Nelson DR. ALLAN FEINGOLD Direct Examination by Mr. Houff Cross Examination by Mr. George DR. CHARLES MULLIN Continued Direct Examination by Mr. Evert Cross Examination by Mr. Sheppard EXHIBITS 9 126 D-25 D-80 D-83 D-84 D-1002 D-1003 Document Dr. Feingolds Curriculum vitae THAN Disclosure Statement THAN Data (Under seal) THAN Trust Distribution Process THAN Ballots (Under seal) Dr. Mullin's Report ACC/FCR - A.M. Best Market Review ID. ------289 295 127 247 EVD. 32 55 237 237 237 237 52 88 9 33 49

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7 1 THE COURT: Good morning. Please be seated. Were

2 back in the -- on the record in the estimation hearing in 3 Specialty Products Holding Corporation. I have a list of

4 participants by phone this morning, these are listen only; 5 Lauren Ascher, Dan Casiero, John Chase, Daniel DeFranceschi, 6 Robert Gonnello, Jonathan Guy, Nava Hazan, Andrew Kramer, 7 Laurie Krepto, Jamie OConnell, Kathleen Orr, Domenic Pacitti, 8 Bronwyn Rinehart, Richard Schepacarter, Zachary Shapiro, Paul 9 Sheaffer, Nikki Wakeman, Davis Wright and Richard Wyron. 10 Are there any changes in entries of appearance in

11 court this morning from yesterday? 12 13 and -14 THE COURT: Sir, Im sorry. I cant hear you. Is MR. GEORGE: Yes, maam. My name is Jonathan George

15 the microphone on? 16 17 MR. GEORGE: MS. HELLER: How about now? See where it says push? Then the light

18 should come on. 19 20 21 22 23 24 25 MR. GEORGE: THE COURT: MR. GEORGE: THE COURT: MR. GEORGE: MS. HELLER: THE COURT: How about now? No. Its got a green light. I know, its always green. Oh. All right. Its on. Its --

Its on. Its on.

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8 1 2 3 4 MR. GEORGE: THE COURT: MR. GEORGE: THE COURT: Okay. My name is Jonathan George and Im with Okay. Okay. Ill talk louder, is that better? Jan, just boost that microphone a little

5 bit, please. 6

MR. GEORGE:

7 Waters and Kraus, special counsel to the ACC. 8 9 10 11 12 THE COURT: MR. NELSON: THE COURT: MR. NELSON: MR. FINCH: Thank you. Lathrop Nelson for the Committee -Thank you. -- Montgomery, McCracken. Nathan Finch for the Committee, as well,

13 Your Honor. 14 15 THE COURT: All right. Mr. Jackson?

MR. JACKSON:

Your Honor, the debtors would call Mr.

16 Timothy Coleman. 17 18 19 THE COURT: Mr. Coleman.

TIMOTHY R. COLEMAN, DEBTORS WITNESS, SWORN COURT CLERK: Please be seated and speak into the

20 microphone. 21 22 THE COURT: Good morning. And, Your Honor, before I start with

MR. JACKSON:

23 questioning, rather than interrupt a couple of times, there are 24 three demonstratives, Ill just give them to you all at the 25 same time if thats all right.

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Coleman - Direct/Jackson 1 2 THE COURT: All right. Thank you.

MR. JACKSON:

I have marked as D-18 a copy of Mr.

3 Colemans report and then the others are 16 and 17 and well 4 talk about them when we get to the -- when we get to that part 5 of the testimony. 6 7 BY MR. JACKSON: 8 Q 9 A 10 Q 11 A 12 Q 13 A 14 Q 15 A 16 Q 17 A Good morning, Mr. Coleman. Good morning. Would you introduce yourself to the Court, please? My name is Timothy R. Coleman. And by whom are you employed? I work with The Blackstone Group, LP. And how long have you been there? Twenty-one years in February. And what is your current position? I run the restructuring group within the firm and sit on How are you? DIRECT EXAMINATION

18 the firms executive committee. 19 Q Now, before we get into a little bit more of your

20 background, can you just tell us what your role is in this 21 proceeding? 22 A I am involved in determining the discount rate for the

23 estimation of claims. 24 Q Okay. Would you give us, sir, your educational

25 background?

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Coleman - Direct/Jackson 1 A I have a bachelor of arts from the University of

10

2 California at Santa Barbara and I am -- have a master of 3 business from USC, University of Southern California. 4 Q 5 A And can you tell us about your employment history, sir? I worked 12 and a half years at Citibank N.A. in New York

6 and then Ive spent, as I said, the almost 21 years at 7 Blackstone. 8 Q 9 A What do you do at Blackstone? As I said, I run the restructuring group, that means we

10 work with companies, creditors, buyers, sellers, governments in 11 all sorts of financial distress. 12 Q And what connection does you everyday job at Blackstone

13 have to do with discount rates? 14 A In virtually every case, we spend time valuing the company

15 claims, something in that -- of that nature which would involve 16 discount rates. 17 Q And have you ever looked in a discount rate for an

18 asbestos estimation proceeding before? 19 A My team has. We have been involved with asbestos I personally

20 companies for a big part of the last 20 years. 21 have not. 22 Q Okay.

With your talking then about your personal

23 experience, have you ever looked at anything that you consider 24 to be similar to the estimation process that -- for asbestos 25 liabilities?

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Coleman - Direct/Jackson 1 A Yes, Ive spent time looking at pension claims. Ive

11

2 spent time looking at VEBA Trusts, helping design VEBA Trusts 3 and the like. 4 Q 5 A Does your job involve anything with doing business plans? In virtually every case, whether we represent the company We

6 or the creditors, there is a business plan that is created. 7 have -- a very big piece of our business is on the debtors 8 side, so we typically would be very actively involved in 9 building those business plans. If were on the creditors

10 side, were either critiquing the business plan or we may be 11 coming up with our own business plan if we dont feel the 12 debtors plan is sufficient. 13 Q And does the question of the applicable or the appropriate

14 discount rate come up in the business plan context? 15 A Not in the business plan context, it comes up in the

16 valuation context. 17 Q Okay. Now, you mentioned pension work, tell us how the

18 discount rate is involved in the pension work that youve been 19 doing? 20 A Well, anything that would involved a future set of

21 payments, whether thats a company with cash flows, whether 22 thats actuarial estimations for pension, the VEBA Trust, it 23 would be estimations of healthcare costs going into the future, 24 any of those kinds of future payments or results would be 25 something that would need to be very typically discounted back

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Coleman - Direct/Jackson

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1 to the present so that people could understand what the either 2 cost of value is, depending on which one were looking at. 3 Q And I think the other thing you mentioned was something

4 called VEBAs, V-E-B-As? 5 A 6 Q 7 A Yes -What --- its Voluntary Employee Beneficial Associations, its a

8 very long word which is why we call it VEBA because its a lot 9 easier to say, but it is a trust. 10 Q 11 from. 12 A It is a trust that is -- that we have and I believe weve Right. It depends about what part of the country you come

13 done most of the large ones where the employees are looking to 14 set up a trust for their future healthcare costs, typically 15 retirees. The company is looking to strike a deal with those

16 parties and so what they end up doing is they take all of the 17 liabilities and put those into a trust and then they put all 18 different kinds of assets into that trust that theoretically 19 would be matching against those liabilities, very similar to 20 what were doing -- discussing doing in this case. 21 Q Well, I was going to say I was going to ask you if you

22 could explain for us how the discount rate issue is involved 23 with the VEBA Trust? 24 A It -- whether its asbestos or healthcare, there is an

25 estimation made of the future liabilities, the future

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Coleman - Direct/Jackson 1 healthcare liabilities. 2 very often contractual. These are typically retirees.

13 Theyre

Its -- very often the negotiation is

3 with a union body and so, one has to determine what is the 4 actual lump sum size of those future costs. 5 And so what we end up doing is we work with the union

6 and with the company to determine what the appropriate discount 7 rates is for all those future flows back to the present, so we 8 can determine the size of that lump sum and then that is where 9 the negotiation is held as to how much is that lump sum and how 10 much should be put into the VEBA Trust. 11 Q And can you tell us generally how you go about selecting

12 discount rates or a discount rate? 13 A We typically use a number of methods, but the primary one

14 we use is called the weighted average cost of capital. 15 Q 16 rate? 17 A We are trying to figure out what the appropriate cost is, What are you looking for when you are selecting a discount

18 both from an equity and debt perspective, that would bring 19 those future amounts back to the present and have that be equal 20 to an actual present value. 21 MR. JACKSON: Your Honor, at this time, wed like to

22 offer Mr. Coleman as an expert in the area of finance and the 23 calculation of discount rates. 24 25 MR. GEORGE: No objection, Your Honor. No objection.

UNIDENTIFIED ATTORNEY:

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Coleman - Direct/Jackson 1 2 Q THE COURT: Hes so qualified. Thank you.

14

Now, specifically turning then to the asbestos estimation

3 process, what do you look for in selecting a discount rate 4 there? 5 A We would look at the same process. In our view, a

6 discount rate is a discount rate. 7 Q 8 A And why is that? Its something that we do in every -- not we, everybody in

9 business does from a corporate finance standpoint which is 10 looking for the most appropriate finance method for determining 11 present value. And what we typically do and what all of our

12 competitors do and everybody else in the business of corporate 13 finance is use a variety of discount rates, the primary one 14 being weighted average cost of capital. 15 Q And how does the issue of risk play into the issue of

16 trying to figure out what the right discount rate is? 17 A The discount rate is all about risk and looking at the

18 concept of discounting takes into account whatever risks would 19 be in existence in each of the situations. 20 Q And as youve looked at the discount rate here, what risks

21 did you see that needed to be accounted for? 22 A I think the risks -- there are many risks. First is this

23 is a very long 30 plus year type of claim environment, so just 24 the passage of time is risk. The world changes pretty If you look 30 years

25 radically, ten years, 20 years, 30 years.

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Coleman - Direct/Jackson

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1 back and think about what the world looked like at that point, 2 what costs were, what assumptions were and what it looks like 3 today, if you looked six years ago what people thought of risks 4 versus what they think of them today, so theres a passage of 5 time. 6 In any estimation, which this is, youre looking at

7 the likelihood that these claims will be the number of claims 8 as are estimated. The cost to meet these claims will be what

9 people are expecting, you know, all of the kinds of things that 10 would go into building the estimation are exactly the kinds of 11 things that people would be thinking, okay, well, therefore 12 what is the risk that that wont be achieved? 13 We do the same thing when we look at business plans,

14 we estimate a business plan typically over a five-year period 15 and it is an estimation, and hopefully its done professionally 16 and carefully and with great thought. But at the end of the

17 day, these are just -- like here, these are all estimations 18 and, with any estimation, therefore, there is a risk that the 19 estimation will be incorrect, up or down. 20 Q Now, Mr. Coleman, if I understand it correctly, in

21 conversation with counsels for the debtors, you -- it was 22 determined you were going to look at two discount rates, is 23 that right? 24 A 25 Q That is correct. And can you tell us which ones?

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Coleman - Direct/Jackson 1 A We looked at weighted average cost of capital and the

16

2 median pension return. 3 Q 4 A Can you tell us how that selection process took place? Yes, we had a rather robust discussion with counsel over

5 what would be the appropriate methodology for determining a 6 discount rate. We looked at a variety of methods, including Its not one that we

7 the prudent investment return concept. 8 felt good about.

We really felt strong that weighted average

9 cost of capital should be used and after a lot of discussion, 10 counsel eventually suggested to us that we would be using the 11 median pension return, as well as the weighted average cost of 12 capital. 13 Q Tell me who was it that suggested the prudent investor

14 standard? 15 A 16 Q 17 A Jones Day. Okay. And your reaction to that was?

It, you know, its a -- were familiar with all different Its one that we had

18 ways to come up with discount rates.

19 heard of, its not one that we see utilized and we certainly 20 dont see it utilized widely. 21 Q 22 A And so what two rates did you finally decide upon? The median pension return, as well as the weighted average

23 cost of capital. 24 Q Now, were you being asked to calculate rates that you --

25 made no sense to you or that you were uncomfortable with?

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Coleman - Direct/Jackson 1 A

17

I think the prudent investment -- prudent investor return

2 is one that is just not one that we see as appropriate, so I 3 cant say somebody was forcing our hand obviously. We wouldnt

4 let somebody do that, but it was one that counsel wanted to use 5 and it was just one we didnt believe in. 6 The interesting thing about weighted average cost of

7 capital, I went to graduate school in the late 70s, thats the 8 method that was used then, thats the method that I personally 9 used in the 30 plus year career that Ive had. Its one thats

10 accepted by every bankruptcy court in the country and it serves 11 as a standard. Now, we use other methods, but that is sort of

12 the central standard in corporate finance. 13 Q Okay. Mr. Coleman, Id like to then turn to your

14 calculation in this case of the weighted average cost of 15 capital and did you prepare a summary chart in the process? 16 A 17 Q 18 A 19 Q Yes, we did. Let me show you what weve marked as D-16. Okay. Let me see if I can get it where its actually quasi Back out to here. All right. Can you tell us what

20 readable.

21 youre trying to accomplish? 22 A 23 Q In this chart? With weighted -- with the calculation of weighted average

24 cost of capital, maybe you could just walk us through that 25 calculation?

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Coleman - Direct/Jackson 1 A Okay. Well, the concept of weighted average means the

18

2 average is between the cost of equity and the cost of debt. 3 Not a lot of people understand the cost of equity because you 4 think equitys free, if you will, theres no interest rate 5 attached to it, but theres actually a very large cost. So the

6 purpose of this calculation is to look at the companys balance 7 sheet to figure out how much debt there is, how much equity 8 there is, what the ratio is between them and then assess the 9 cost of each against that ratio. 10 So what we did here is we -- actually, let me back up What we have to do in companies that are in

11 one second.

12 bankruptcy by definition, they probably wouldnt be in 13 bankruptcy if their equity was in existence, so and Im talking 14 about generic for the moment. So typically what we do is we

15 look at a comparable set of companies and we look at what their 16 ratio is of equity to debt. 17 Q 18 A 19 Q And did you do that here? And we did that here. Let me just ask you to take a look at whats been marked

20 as Debtors Exhibit Number 9. 21 A 22 Q 23 is? 24 A These are the four companies that we chose to consider as This is actually one of Okay. And can you tell us, sir, what Debtors Exhibit Number 9

25 comparable companies to the debtor.

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Coleman - Direct/Jackson 1 the more important things that we concentrate on when were 2 looking at developing the weighted average cost of capital -3 4 A THE COURT: Can you --

19

-- because its important to try it find companies that

5 are of like business, hopefully of like size, hopefully of like 6 risk and like future. So, you know, we could show you a list These companies are ones

7 of, you know, 25 chemical companies.

8 that we felt were akin to the debtors as close as possible. 9 It isnt always an exact science. 10 If you were going to look for comparable companies of

11 Ford Motor Company, it would be pretty easy to say well, I 12 guess you should look at GM and Chrysler and the others. On

13 the other hand, if you might have been looking at Ford right 14 when GM was going into bankruptcy, you might not think that GM 15 would be a good comparable. 16 So this is not sort of a math, you know, a

17 mathematical concept, this is one that requires judgment. 18 Q 19 And so the -THE COURT: Could you clear up the screen, please? I

20 cant read the screen. 21 22 23 MR. JACKSON: THE WITNESS: MR. JACKSON: Sorry, Your Honor. Theres a back -Let me try and get it there. If we can

24 show part of it at a time, can you see the company name? 25 THE COURT: Thats better. Thank you.

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Coleman - Direct/Jackson 1 2 Q MR. JACKSON: You bet.

20

And why dont you just tell us, Mr. Coleman, what

3 companies you selected? 4 A We picked the four that you can see on the screen; H.B.

5 Fuller, RPM International, which is the parent company, Sika 6 and Valspar. 7 Q And then what did you do with the information you gained

8 from those companies? 9 A Well, we use a number of the calculations on this exhibit.

10 The first -- the fourth and fifth columns, the fourth column 11 says equity divided by total capital and the next column says 12 debt. 13 Q 14 A 15 Q 16 A 17 Q 18 A 19 Q 20 A This one and this one? Yes. Okay. Youre on the debt one there. Yeah, all right. Thank you. No. So those percentages, and we took the median of the four, I dont have the ability to point right now.

21 gave you a -- an equity to cap and debt to cap calculation to 22 determine what type of balance sheets the comparable companies 23 have. And what you can see here is that all of those companies They have a low debt to cap

24 are relatively underlevered.

25 structure, 22.4 percent of their capital structure is in the

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Coleman - Direct/Jackson

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1 form of debt and 77.6 percent of their capital structure is in 2 the form of equity. 3 We also look at the average cost of debt which is one

4 of the items that goes into the weighted average cost of 5 capital. 6 median. Again, we looked at 3.6, 2.8.6 and 3.5 and picked the There are those who could argue average. We typically

7 look at median because it allows you to throw out things that 8 may be high and low and inappropriate to the overall 9 calculation. Its something that I believe Ive done my entire

10 career and most corporate finance professionals look at it that 11 way. 12 The next column over is levered beta. This is part

13 of the calculation for the cost of equity and this is something 14 that we are able to find on public source -- in public sources 15 and in this case we used Bloomberg. 16 tax rates. 17 And then the last calculation is determining what the And what that means is the levered Then we can look at their

18 actual unlevered beta is.

19 beta is what is publically reported and what we want to do by 20 unlevering their beta is take out all of the issues of their 21 capital structure to come up with just what it would look like 22 if there was no leverage, so that we can use that number to 23 then determine what the levered beta would be for the company 24 that were going to discount. 25 Beta, Your Honor, is the -- youve probably seen this

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Coleman - Direct/Jackson 1 a million times in your courtroom with valuations, but the

22

2 concept of beta is to look at how a stock reacts to the overall 3 marketplace so if the -- if its a volatile stock, it will have 4 a high beta versus the overall market. If its a not volatile

5 stock, it will have a low beta compared to the marketplace. 6 One to one would mean it would react almost identically every 7 time to how the market, so if the S&Ps up, it goes up, if the 8 S&Ps down, it goes down, where as a highly -- where as a high 9 beta, if the market goes up, it might go up in a very drastic 10 form and likewise if it goes down. So the beta is a concept

11 that goes into the calculation which I will describe a little 12 bit more in detail later. 13 Q Okay. Well, why dont we get back to that calculation,

14 sir, going back to what we marked as D-16? 15 A 16 Q Okay. Can you sort of finish walking us through that

17 calculation, please? 18 A Sure. So maybe just, again, from the top line, you see In the case of the comparables, thats 77.6 The cost of

19 the equity ratio.

20 percent which you can see on the line just below.

21 equity, ten percent, I will describe how I got to that in a 22 moment. Then you see the debt ratio which is the 22.4 percent

23 I described a second ago, cost of debt multiplied by the cost 24 of debt which is 3.2 percent. And then it has to be tax

25 affected because of the benefits of being able to right off the

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Coleman - Direct/Jackson 1 interest, so that is one minus the tax rate which we used 35 2 percent in this calculation. 3

23

So what you can see from that is the weighted average

4 cost of capital would be the cost of equity would be 7.8 5 percent, the cost of debt would be .5 percent. They would be

6 added together because, again, youre trying to get to, you 7 know, 100 percent of the total capital and that would give you 8 a weighted average cost of 8.2 percent. 9 Q And is 8.2 percent the discount rate for weighted average

10 cost of capital -11 A 12 Q 13 A 14 Q That --- that you came up with? Yes, that would be the discount rate. All right. Well, you told us you would explain to us in a

15 minute how you did the cost of equity number which is that ten 16 percent number -17 A 18 Q 19 A Right. -- can you tell us how you do that? Id be happy to. The cost of equity is using a formula This, again, is

20 called the capital asset pricing model.

21 something that has been around for decades, something I 22 actually learned in graduate school and thought I would never 23 look at again and testify to regularly, so its a very tried 24 and true methodology. 25 This takes the risk-free rate that is in existence

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Coleman - Direct/Jackson

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1 through published sources and adds to it a market risk premium. 2 So you take the levered beta that we described before, which we 3 had determined here to be 1.1 times, and multiply it by the 4 market risk premium, which is 6.62 percent. 5 Q Can I stop you right there and ask you to explain to us

6 what this market risk premium is? 7 A Yes, the market risk premium is meant to be what does the

8 market require over a period of time if theyre going to invest 9 in equities? What we use is Ibbotsons (sic) Associates that I

10 believe is 100 percent of the time used by people in my 11 profession and we looked at their risk premia overtime reports, 12 Footnote 3, the period that they -13 Q 14 A 15 Q The -- let me see if I -Sorry. -- can get focused in enough to get anywhere close to the

16 footnote, probably not. 17 A 18 Q 19 A Its the third one down. Okay. So it looks at the period, the longest period possible.

20 In this case, we used 1926 to 2011 and the reason -21 Q 22 A Well, why would you use such a long period? Well, the reason that you would use a long period is

23 because, again, this is suppose to be what the investors look 24 for over time as a premium to invest in stocks. So if you

25 picked a short period, for instance, if you picked 2007 to

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Coleman - Direct/Jackson 1 2011, youd have a very skewed period. If you picked 2002 to

25

2 2006, youd have a very skewed period of very high markets, 3 very low markets. The goal is to take out those kinds of

4 periods to look at what the typical premium is that the market 5 looks for. 6 So you can see starting from 1926, thats before the

7 Great Depression, it goes through every high and low in the 8 marketplace all the way through 2011 and, therefore, hopefully 9 gives a number which is reflective of what investors are 10 seeking. 11 Q Now, I apologize, I interrupted you in the process of

12 describing your cost of equity calculation, so could you pick 13 it up there and tell us what else you did? 14 A Okay. So what were then doing, again, going back to this

15 levered beta concept which I know is probably a little 16 confusing, but the one that we calculated of 1.1 times is 17 multiplied by that market risk premium. So remember, the

18 premium is all stocks, not just chemical companies or anything 19 else, it is all stocks over time. 20 So we multiplied that percentage times how the

21 comparables that were looking at typically trade against the 22 overall market which would show -- 1.1 would suggest a little 23 bit of a more volatile reaction than at 1.1 times. 1.1,

24 frankly, pretty flat to the market risk premium, but you can 25 see levered betas that are significantly higher than that.

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Coleman - Direct/Jackson 1

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So we would multiply that by the market risk premium

2 to come up with that total number, add that to the risk-free 3 rate which is in circumstances where there -- it was allegedly 4 no risk to come together and equal the actual cost of equity 5 which, in this case, is ten percent. And the way to think of

6 that once weve done that calculation, I think the way to look 7 at it if it was your money, would you invest in this kind of a 8 business for an equity return of ten percent? Some years you

9 might say yes, other years you might say no, but thats the 10 theory of it. 11 The theory is if Im investing my money, would I put

12 it into a company like SPHC if I thought what I could return to 13 me would be ten percent, but what are my alternatives? 14 Q And is there anything else you think we need to talk about

15 to explain this calculation? 16 A Probably not, that is the -- the only thing I would say

17 is, you know, we look at weighted average cost of capital in my 18 group, Im sure, every day on some set of companies. 19 most common standard used. It is the

It is the most accepted standard

20 used in bankruptcy courts and its the most accepted standard 21 used by investors across the world. You know, my firm has a

22 very large private equity business and this is how we look at 23 the flow of cash at companies when were thinking about what we 24 should pay for a company. 25 Q All right. Now the second calculation you did was the

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Coleman - Direct/Jackson 1 pension fund rate? 2 A 3 Q Correct. Let me ask you to, if you would, flip to the second page

27

4 of Exhibit 9. 5 A 6 Q 7 A Okay. And can you tell us, sir, what that is? Yes, what we looked at were the 15 largest public sector

8 pension funds and we looked at their investment returns over a 9 five-year and a ten-year period versus Ibbotsons that has the 10 data available to them, the longer you go, the more you lose 11 the information. So you can see in the ten-year, theyre about

12 five of the companies where we have an N/A there because we 13 were not able to get that investment return. 14 But these are largest public pension funds and we

15 think they are indicative of how the pension market would be 16 attempting to invest their dollars in order to meet their 17 pension obligations. 18 Q Okay. So once you came up with the list of funds you were

19 going to look at, tell us what you next did to try and figure 20 out what you thought the appropriate pension fund rate would 21 be? 22 A So what we did there then is we looked at a median return

23 and we also looked at average here, though really median is the 24 main thing we considered, of each of those years, the five-year 25 period and ten-year period. That would, for instance, Number

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Coleman - Direct/Jackson 1 11, Ohio Public Employees must have had a problem in the 2 five-year period, 1.7 percent, same thing with the Federal 3 Retirement Thrift, Number 1. And you could also see somebody

28

4 that might have had an outsized return, so it eliminates some 5 of those highs and lows and figure out what the base return 6 would be for these pension funds and that gives you a median 7 return of 4.9 percent for the five-year period and 5.5 percent 8 for the ten-year period. 9 Q Okay. And which one do you think is the right one for

10 this purpose? 11 A I think anytime youre looking at returns, the goal would

12 always be to try to stretch it out beyond cycles, beyond 13 investment cycles. So it wouldnt be a surprise to anybody

14 here that the five-year period which would have encompassed the 15 great recession as its called would be lower than the ten-year 16 period because of the fact that the period before was a very 17 robust period. So the ten-year hopefully took into account a

18 full set of cycles and therefore would give a sense of the 19 median return whereas the five-year might be impacted by the 20 shortness of its period. 21 Q 22 be? 23 A 24 Q Five point five percent. Now, tell us why you dont think -- why you didnt use a And what did you determine the ten-year median number to

25 risk-free rate?

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Coleman - Direct/Jackson 1 A Ive never seen really anybody use a risk-free rate when I mean, Ive There

29

2 looking at future claims or future cash flows.

3 seen it, I dont -- Ive never seen it used logically. 4 is no question there is risk in this world, there is no

5 question there is risk to these assets, theres no question 6 that the debtor that were talking about has risk to it. If

7 you were to have that debtor put into the trust stock that -8 of its own stock or debt which many of these asbestos trusts 9 have done, many of the pension trusts have done, that risk 10 would continue. And even if you decided on lump sum, when you

11 calculate what that lump sum should be, the risk of that 12 company should, in fact, factor into that discussion. It only

13 makes sense that there is a company, thats where youre 14 looking to get the cash from, so that risk should be accounted 15 for. 16 So I think if you use a risk-free rate, you are

17 ignoring -- or youre making an assumption that there is zero 18 risks and I dont see that. I, as I said earlier, I think

19 there are lots of risks to the estimations, theres risk in the 20 world, theres geopolitical risk, you can go on and on. So to

21 suggest that somebody would just look at a risk-free rate I 22 think would be false. It obviously would give it a very, very

23 high number, the lower the discount rate, the higher the 24 present value, but I think it would give a false and misleading 25 present value.

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Coleman - Direct/Jackson 1 Q

30

You mentioned the practice of the existing asbestos trust,

2 do you look at that? 3 A 4 Q We did. Let me put up what weve marked as D-17 and Ill start at

5 the broad view and then we can zoom in a little bit, but can 6 you tell us what D-17 is? 7 A Yes, we decided to look at, you know, there are all these As I said, weve been involved in asbestos

8 asbestos cases.

9 cases for many, many years and many of these on this page, but 10 we thought, frankly, looking at the rebuttal report, how much 11 discussion there was about risk-free rate and how thats the 12 standard used and thats what everybody should consider, most 13 of these cases were settled, so there really wasnt a big 14 litigation. But we thought well, lets see where they put

15 their money when they actually get it. 16 And what we found is they dont put it into risk-free

17 investments, they put it into the same kinds of investments you 18 would expect to see. The number, as you can see at the bottom

19 of the page, the median, 5.1 percent in 2010 and 4.9 for 2011, 20 is almost identical to the pension five-year and ten-year 21 return. So and when you look behind at each of these

22 industries, what you see with their investments is they are in 23 hedge funds and common stock, corporate bonds. Very, very few

24 of them, frankly, are in treasuries and my recollection is 25 theres one thats has about a 16 percent of the fund invested,

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Coleman - Direct/Jackson 1 a couple of other, maybe four percent, I dont remember the 2 exact numbers, but very, very little of the investment goes

31

3 into a what would be considered a risk-free type of investment 4 like a U.S. Treasury. 5 So it is not surprising to me. I would have to

6 imagine that, with the risks that exist, that anybody that 7 received this money would not just put it into a risk-free 8 investment, but they would actually go and attempt to, you 9 know, mitigate those risks by investing it in an appropriate 10 way which it appears most of them have done. 11 One thing Id point out on this page, if you look at

12 Number 10, G-1, of a one percent return, that is not because 13 its sitting in a risk-free investment. Its a note that comes

14 from the company and the only thing I can determine there, I 15 wasnt involved in that case, but there must have been, in the 16 settlement discussions, there must have been an agreement. 17 Well give you, you know, X number which would have been a high 18 number most likely, but well only pay you a one percent 19 interest rate. Therefore, over time, if you use the

20 appropriate discount rate, the actual value they were giving 21 was much less even though the headline number would have been a 22 lot higher. 23 But, for the most part, you can see they all sort of

24 invest along the same way. 25 Q Mr. Coleman, thank you, very much. I have no further

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Coleman - Direct/Jackson 1 questions. 2 A 3 4 exhibit. Okay. THE COURT:

32

Excuse me one second, I need to check one The

Im not certain that I marked it appropriately.

5 first exhibit that you showed the witness, Mr. Jackson. 6 7 8 MR. JACKSON: THE COURT: D-16?

D-16, okay. That was his summary of the weighted

MR. JACKSON:

9 average cost of capital calculation. 10 11 12 THE COURT: No, not the demonstratives, the -Oh, the exhibit, its Exhibit 9.

MR. JACKSON: THE COURT:

Nine and 17, are they the only two

13 non-demonstrative -14 MR. JACKSON: Seventeen is a demonstrative, nine is And I suppose while Im here and

15 actually a debtors exhibit.

16 before I totally walk away, I should offer Debtors Exhibit 17 Number 9. 18 19 20 21 22 23 24 THE COURT: MR. NELSON: THE COURT: MR. DORSEY: THE COURT: Any objection to Exhibit 9? No objection. All right. No objection, Your Honor. Exhibit 9 is admitted. Thank you, Your Honor. So the exhibits you used, I

MR. JACKSON: THE COURT:

All right.

25 just want to be sure Ive got them, you used Demonstrative 16,

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Coleman - Cross/Dorsey 1 17 and 18 and then substantive Exhibit 9? 2 3 4 5 6 7 BY MR. DORSEY: 8 Q 9 A 10 Q Good morning, Mr. Coleman. Good morning. MR. JACKSON: THE COURT: Yes, maam. That is correct.

33

Okay.

Thank you.

MR. JACKSON: THE COURT:

Eighteen was just a copy of his report. Cross examine?

Yes.

CROSS EXAMINATION

Your understanding for the purpose for determining the net

11 present value of the debtors asbestos liability is -- was -12 is a part of settlement discussions, is that correct? 13 A My understanding is we were attempting to come up with a

14 calculation for the present value of the claims and then that 15 calculation, that present value would then be part of a 16 settlement discussion. 17 Q And those discussions have to do with how much would be

18 appropriate payment by SPHC to pay for the claims of the future 19 claimants, the future asbestos claims? 20 A I think those discussions, we had to see if we could

21 settle our differences. 22 Q And you mentioned that there were a number of risks that

23 you took into account which is why you think the weighted 24 average cost of capital is more appropriate to use and Id like 25 to walk through those in a little bit more detail. The first

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Coleman - Cross/Dorsey 1 was the risks associated with healthcare costs, is that 2 correct? 3 A 4 Q 5 A I did mention that. What is the risk associated with healthcare costs? I think the healthcare costs could change in very many

34

6 ways; they could go up dramatically, they could go down 7 dramatically. Weve just had the Affordable Care Act passed, There

8 its the presidents view that will bring costs down.

9 could be a cure to meso which would change dramatically what 10 the claims would be in the future. I think if youre around

11 healthcare at all, which weve been around it a fair amount, 12 the one thing that is sure is it isnt -- its rarely what 13 anybody predicts. 14 Q So one of the risks associated with healthcare costs is

15 that there might be a cure for mesothelioma sometime in the 16 future? 17 A I said that among other things, its an example of which I would hope so.

18 could actually bring the cost down, sure. 19 Q

And you also mentioned the timing of healthcare costs,

20 what do you mean by that? 21 A 22 Q 23 A 24 Q 25 A I dont actually remember using the word timing. Well, you used it in your deposition? Okay. Lets go back to your deposition. Are you going to show that to me?

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Coleman - Cross/Dorsey 1 Q 2 3 4 Q 5 Yes. MR. DORSEY: THE COURT: May I approach, Your Honor? Yes.

35

And if you would turn to Page 9 of that deposition. MR. DORSEY: I apologize, Your Honor. I think these

6 are the four page ones that you dont like. 7 8 9 UNIDENTIFIED ATTORNEY: MR. DORSEY: THE COURT: Do you need another one?

Do we have a large copy? No, it -- theyre fine for now. Its

10 just that when Im trying to read massive quantities of them, I 11 will prefer that you give me a large version, please. 12 sorry, page what? 13 14 15 16 A MR. DORSEY: THE COURT: MR. DORSEY: All right. Page 9, Your Honor. All right. Line 22, beginning at Line 22. Im

So theres -- theyre -- the pages are

17 paginated and then the blocks are paginated, I assume you mean 18 Page 9 in the small blocks. 19 Q 20 A 21 Q 22 A 23 Q Page 9 at the top, right -Right. -- yes. Right. Page 9, Line 22, I asked you the question, What are the Okay.

24 risks that you see are associated with the liabilities here? 25 And you stated, Well, I see a couple of risks. In terms of

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Coleman - Cross/Dorsey 1 the liabilities, I think all of the liabilities are based on 2 estimates; they are estimates of healthcare costs, they are 3 estimates of timing of healthcare costs, do you see that? 4 A 5 Q Yes. What did -- what do you mean by timing of healthcare

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6 costs? 7 A It depends on when claims will come in, all the claims

8 could come in tomorrow, claims may not come in for 30 years. 9 Obviously, neither of those are probably going to happen, but, 10 you know, the estimation would have an estimation as to when 11 these claims actually occur. 12 Q And one of the other risks that you mentioned was that the

13 number of claims that might be filed against the trust, is that 14 correct? 15 A 16 Q Thats correct, its right there. Now, didnt Dr. Mullin, Dr. Vasquez and Dr. Peterson

17 already take those issues into account when they determined 18 what the estimate of the future liabilities were going to be? 19 A I think youd have to ask them. I assume theyve made

20 estimates and I would assume some of those estimates would 21 include claims and timing and healthcare costs and things like 22 that. 23 Q So if they include those risks that you included in

24 determining that weighted average cost of capital as the 25 appropriate methodology to use then youd be double counting

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Coleman - Cross/Dorsey 1 those risks in using a weighted average cost of capital, 2 wouldnt you? 3 A You know, I couldnt disagree more strongly with you.

37

The

4 -- when I saw that in your rebuttal, I was sort of surprised. 5 And when we look at anything going into the future, people make 6 their best estimates. In a business plan, we make our best

7 estimate as to what we think the company is going to produce in 8 terms of revenues, doesnt mean they produced them. 9 In the calculation would be healthcare costs, timing,

10 claims, things like that and I would agree, the risk is that 11 those estimates are wrong. The risk is that there is a

12 difference and thats one of the reasons why you would never 13 look at this as riskless. In fact, its the reverse, so I Its somebodys

14 dont see it as double counting at all.

15 estimate that they made and thats -- and these all seem to be 16 great professionals, so theres quite a difference in their 17 results, but that doesnt mean youre double counting. 18 Actually, I think thats probably where we miss each

19 other the most which its saying, yes, this is the estimate. 20 These estimates are created in this way, but that might not 21 happen. Every business plan Ive ever worked on, you know, the

22 people beat the plan, they meet the plan, they miss the plan. 23 That doesnt mean you double count it just because you 24 discounted it back. It means that you accounted for the risks

25 that exist in an appropriate way and actually --appropriate

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Coleman - Cross/Dorsey 1 corporate finance way. 2 Q Well, didnt those other experts account for those risks

38

3 by producing a range of potential liabilities into the future? 4 A I dont think that would, again, I think thats where That would not change anything

5 were missing each other.

6 whether they provided a range or not, it really is once you 7 have an estimate, could that estimate be wrong and I could tell 8 you Ive made estimates in my life and have missed many times, 9 so the answer is I dont think the range would matter, at all. 10 Obviously the experts have a very big different

11 between then, its about a billion dollars between the 12 companys experts and one of your experts. That means there

13 must be risk because they, you know, theyre all professional 14 people. I dont know your experts, but Im sure theyre very

15 professional people, but it means theres a difference in 16 estimates and it would -17 Q 18 A 19 Q Have you read those reports? I have skimmed those reports and read our report. And you know the difference between Dr. Mullins report

20 and Dr. Vasquez, Dr. Petersons? 21 A 22 be. 23 Q So well leave that to those experts to tell us what their Im not an expert on the estimation, Im not pretending to

24 reports mean, correct? 25 A I agree with that, but all Im saying is youre asking me

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Coleman - Cross/Dorsey

39

1 why -- if its double counting and Im trying to be very clear 2 with you, there is no way that is double counting. 3 that would be missing the whole point. In fact,

Estimates are

4 estimates, they have risk associated with those estimates and 5 so when one were to look at how to do determine what todays 6 value is of all those future claims, one has to take into 7 account risk in the formula that you would use to discount 8 those claims. 9 Q Well, lets go back to your idea that this is all a part

10 of settlement and you testified in your deposition, I believe, 11 that you said the discount rate plays into the settlement of 12 the claims by taking into account those risks that weve 13 identified -14 A 15 Q Can you tell me what page youre on? Well, lets see if you remember first, then well go back

16 to your deposition. 17 A Its in here, apparently, youre quoting, so I would

18 prefer -19 Q 20 A 21 No, Im not quoting, Im just paraphrasing. Oh, sorry. I didnt think it sounded like my words. Could you just ask a question, please and

THE COURT:

22 then we can get on? 23 24 Q 25 MR. DORSEY: You -THE COURT: Not from the deposition, ask a question. Im trying, Your Honor.

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Coleman - Cross/Dorsey 1 2 MR. DORSEY: THE COURT: Okay. Hes here on the stand, ask him his

40

3 testimony, please. 4 Q Your view, sir, is that the discount rate plays into the

5 settlement of claims by taking into account the risks that 6 youve just identified, as well as the risks associated with 7 SPHC not being able to -- or being able to fund a trust going 8 forward, correct? 9 A I said it a little differently and so let me make it The discount rate is to determine the present value of Once we have determined the present value and once

10 clear.

11 the claims.

12 you have determined the present value then each of us will take 13 that analysis and hopefully find a way to settle this case, but 14 I dont -- I didnt say it quite the say you said it. The

15 discount rate is purely a mathematical formula once ones 16 determined what the appropriate discount rate is. 17 Q Lets go back to your deposition then again and see what And thats on Page 12 beginning at Line Number

18 you said there. 19 22.

I asked you the question, And how does the discount rate And your answer was,

20 play into the settlement of the claims?

21 Well, I think it comes in two places (1), is the one I was 22 describing which had to do with healthcare costs, timing, et 23 cetera. That is one place where it comes in. The other place

24 is theres a negotiation as to whether SPHC will pay something 25 and, if so, how much? And therefore one is looking at the

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Coleman - Cross/Dorsey 1 risks associated with SPHC, do you see that? 2 A

41

Yeah, I would prefer to start at Page -- on Line 14 where

3 you asked me what is your understanding of why were trying to 4 determine the net present value of future liabilities? And

5 what I said there, therefore, was its part of a settlement 6 discussion. Thats how I was thinking about it, thats what I

7 was trying to suggest to you and thats what I would say to you 8 today. 9 Q I think we already covered that. Ive asked you whether

10 you thought this was a part of a settlement discussion which 11 was why you were determining the discount rate. 12 that that was true. 13 A 14 Q Right. Okay. And in your view, theres no reason why SPHC And you said

15 couldnt fund a trust on a going forward basis as opposed to 16 just providing a lump sum payment, correct? 17 A There are many situations where companies, the VEBA Trust

18 being an example, where companies put their own securities in, 19 both debt and equity and other items which would continue to 20 obviously produce value, but also produce risk. 21 Q And thats something that the debtors would prefer is to

22 pay it over time, rather than making a big lump sum payment, 23 correct? 24 A I wouldnt -- I dont know, I have not discussed that with

25 the debtors.

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Coleman - Cross/Dorsey 1 Q And the claimants on the other hand would rather get a

42

2 lump sum payment and be done with SPHC and not have to worry 3 about them in the future, correct? 4 A I honestly have no idea. I mean, when you look at the 15

5 ones we looked at, some people decided for whatever reason to 6 take ongoing securities from the company and some people took a 7 lump sum and thats the calculation that each side needs to 8 make on their own. 9 thoughts were. 10 Q And its true that if you use the weighted average cost of I wouldnt know what the claimants

11 capital, and Im going to give you a hypothetical, you have two 12 companies that have different weighted average costs of 13 capital, but have the exact same future asbestos liabilities, 14 then that present value of those future liabilities would be 15 different between the two companies just because of the 16 weighted average cost of capital on the discount rate, correct? 17 A I think if youre asking me a mathematical question, the If two different companies have two

18 answer is thats correct.

19 different discount rates, then the number will be different. 20 Q You mentioned earlier that you do work with pension

21 creditors, is that correct? 22 A We have actually worked for the PBGC and weve worked for

23 companies where pension creditors are involved in as one of the 24 claimants. 25 Q And pension creditors are voluntary creditors, correct?

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Coleman - Cross/Dorsey 1 A 2 Q I dont understand your question. Theyre voluntary creditors, they decided to participate

43

3 in a pension fund on their own, they werent forced into it? 4 A Yeah, I dont know that I understand your terminology.

5 They are in a pension fund for a reason which would have to do 6 with their employment and I guess theyre voluntary employees, 7 so I guess you could get all the way to yes, theyre 8 voluntary -9 Q 10 A 11 Q 12 A 13 Q 14 A 15 Q 16 A 17 Q Okay. -- pension holders. Thats exactly where I was going. Okay. Thank you. Sorry, I was just trying to understand it. And you mention VEBA Trust, you do work for them, as well? Yes, my firm has. And VEBA Trusts are also made up of voluntary creditors,

18 correct, theyre voluntary participants in that trust? 19 A Interesting question, you know, theyre employees, they

20 have negotiated for benefits and they are hoping to maintain 21 those benefits. And so the concept of setting of the VEBA

22 Trust is to protect those employees, to protect that agreement 23 and sometimes its as a consequence of fear that the company is 24 having troubles, so they set the VEBA Trust up in order to 25 protect the retirement benefits with whatever is put into that

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Coleman - Cross/Dorsey 1 VEBA Trust, cash, et cetera. 2 Q So they would be more along the lines of a voluntary

44

3 creditor as opposed to someone whos being forced into a VEBA 4 Trust? 5 6 THE COURT: MR. DORSEY: I dont understand the question. Ill withdraw the question. Ill

7 withdraw the question, Your Honor. 8 Q Are the asbestos creditors in this case, are they

9 voluntary creditors? 10 A Im not sure why youre asking me. I dont know that Im

11 an expert on what youre talking about, but they are claimants, 12 just like every other claimant in a case. 13 Q 14 A They didnt ask to be poisoned by asbestos, did they? I doubt anybody wanted to get exposed to something that

15 would cause sickness. 16 Q And they didnt voluntarily participate in this

17 bankruptcy, they were forced into it because the debtors filed 18 for bankruptcy, correct? 19 A None of the claimants in this case, including any other

20 claimant, would have wished that a company would file for 21 Chapter 11. 22 Q And you mentioned on your direct examination that you

23 werent aware of any -24 25 THE COURT: MR. DORSEY: But, pardon me. Yes.

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Coleman - Cross/Dorsey 1 THE COURT:

45

I dont know how the debtors listed each If theyre listed as

2 claimant in this case, specifically.

3 contingent, disputed and unliquidated then I suppose to 4 participate in the case, a proof of claim has to be filed. 5 youre asking this gentleman legal questions about which, I 6 apologize, I dont believe he has a law degree, so I dont know 7 what the qualification is on that side. But even if he does, But

8 where are you going with this point because whats the 9 relevance to the discount rate as to whether somebody has or 10 hasnt filed a proof of claim? Weve never set a bar date in

11 this case, how do we know whether anybodys voluntarily 12 participating? 13 MR. DORSEY: Well, my clients, Your Honor, would

14 never be filing proofs of claim because theyre all unknown -15 16 THE COURT: MR. DORSEY: Well, okay, they are. -- we dont know, so they are not

17 voluntarily participating. 18 THE COURT: Okay. So if you choose not to have a

19 future claims representative in the case, I guess you dont 20 want a future claims representative in the case. But my

21 understanding was the future claimants, in order to make sure 22 that they got a distribution, wanted a future claims 23 representative in the case and therefore voluntarily asked for 24 one, no? 25 MR. DORSEY: I dont know if thats the right way to

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Coleman - Cross/Dorsey 1 go about it, Your Honor. 2 3 THE COURT: MR. DORSEY: The --

46

Well, whats the point? -- point is that, in a pension fund,

4 theyre a voluntary creditor, theyre voluntarily to 5 participating, so they expect to get a better rate of return. 6 THE COURT: Well, I dont know about that. I can

7 state from the federal government point of view once you sign 8 up to be part of the federal government, youre in a pension 9 plan whether you want to be in it or not. So I dont know Im missing the

10 whether its voluntary, but whats the point? 11 relevance. 12 13 MR. DORSEY: THE COURT:

Ill move on, Your Honor. Well, I would like to know what the

14 relevance is. 15 16 17 Finch. 18 MR. FINCH: THE COURT: Your Honor, may I -If youre going to argue -- no, Mr.

If -- I would like to know what the relevance is. MR. DORSEY: The relevance is, Your Honor, that were

19 trying to figure out what is the appropriate discount rate to 20 use -21 22 THE COURT: MR. DORSEY: Yes. -- to calculate the present value of

23 future and present asbestos -24 25 THE COURT: MR. DORSEY: Yes. -- liabilities. In the context of a

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Coleman - Cross/Dorsey 1 pension fund, those are, in my view, theyre voluntary 2 creditors, theyre voluntarily participating, they decided to 3 join the company or work to the government or whatever. 4 THE COURT: And the asbestos creditors decided to

47

5 work for the company or purchase the product. 6 MR. DORSEY: Well, I -- I would respectfully I -- someone who is -- has developed

7 disagree, Your Honor.

8 mesothelioma is not someone who voluntarily -9 10 THE COURT: MR. DORSEY: Of course not. -- they didnt know that there was a

11 risk when they bought that, so -12 THE COURT: Well, I dont know if they knew about the

13 risk or not, but they certainly didnt sign up to get 14 mesothelioma. 15 16 Honor. 17 THE COURT: Okay. Well, then lets move on because We can all agree with that. Yes, and thats my only point, Your

MR. DORSEY:

18 that is wholly irrelevant to determining the discount rate. 19 MR. DORSEY: Okay.

20 BY MR. DORSEY: 21 Q Mr. Coleman, you mentioned on your direct examination that

22 you arent aware of any Court that has applied a risk-free rate 23 of return in connection with determining that present value of 24 future liabilities, is that correct? 25 A I didnt say that. That -- I definitely didnt say that.

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Coleman - Cross/Dorsey 1 There probably have been. I dont think that makes it right.

48

2 You know, Courts have their own judgments and people can look 3 at those judgments and determine what they think of them. 4 What I said was most of the cases have been settled, But it is my

5 very few of them actually went to litigation.

6 view that using a risk-free rate, whether a Court has said 7 thats a good idea or a bad idea, is the wrong idea. Its not,

8 in any way, reflective of how discounting and present value 9 work. 10 Q Do you know whether any of the trust funds that you

11 identified in the exhibit that Mr. Jackson showed you on the 12 investment returns of the 15 largest funds? 13 A 14 Q Asbestos funds trust. Yeah, do you know whether any of those were litigated on

15 the issue of the discount rate to be applied? 16 A 17 Q I -- specifically, no. And are you familiar with the supreme courts decision in

18 Jones v. Laughlin (sic) where the Court said that the discount 19 rate for tort claims should be the risk-free rate? 20 A 21 22 Honor. 23 24 25 Honor. That is not my -- I didnt -- the answers no. MR. DORSEY: If I could have just one minute, Your Thank you.

I have no further questions, Your Honor. THE COURT: MR. NELSON:

Is the Committee asking any questions? Just a couple followup questions, Your

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Coleman - Cross/Nelson 1 2 3 BY MR. NELSON: 4 Q Mr. Coleman, my name is Lathrop Nelson, counsel for the If you -- as an investment advisor, if a client THE COURT: All right. CROSS EXAMINATION

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5 Committee.

6 says I would like an investment with no risk, what type of 7 investment would they need to be guaranteed a rate of return? 8 A We had a great debate about that last night, actually.

9 You know, the U.S. Treasuries are considered the risk-free 10 rate. The U.S. balance sheet looks like Greece. Our country

11 is a country which is considered the reserve currency which 12 means people put their money here which keeps our rates low. I

13 think people will look back at today and wonder why we consider 14 the U.S. Treasury as a risk-free rate, frankly. 15 Q 16 A But today, the U.S. Treasury is a risk-free rate, correct? No, its the U.S. Treasury rate and then people often say

17 thats equivalent. 18 Q But in terms of seeking the best and safest investment

19 today, its the U.S. Treasury rate? 20 A Im sorry, I cant testify yes to that. I have very

21 strong views about our economy and our deficit and our debt, so 22 I dont know that thats the safest rate to be in. The return

23 somebodys getting on taking the risk on U.S. Governments 24 profile does not seem to me to match the risk. 25 Q That certainly would be a lower rate than a weighed

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Coleman - Cross/Nelson

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1 average cost of capital that you would calculate for -- or that 2 youve calculated in this case? 3 A Well, the U.S. Treasury rate is definitely lower than the

4 rate that weve calculated here for a discount rate. 5 Q Right. And you dont get -- so if that client comes to

6 you, you dont get to chose what risk level a client has to 7 accept, right, hes -- the client has told you I want a 8 risk-free rate? 9 A You mean, if somebodys asking me to invest money for them

10 and they say I want to put it into riskless investments? 11 Q 12 A 13 Q Correct. So whats the question then? Correct, you would be required to put it into a risk-free

14 rate, right, its what your client requested? 15 A If somebody asked for a riskless environment, we would do

16 our best to find something that was not risky. 17 Q Right. Were there any mesothelioma victims that have

18 agreed to take any kind of risk of payment? 19 A 20 Q I couldnt hear that question. Are you aware of any mesothelioma payment -- victims that

21 have agreed to take any kind of risk payment? 22 A 23 Q I dont have an answer for that. You testified that in calculating the WACC you used a

24 risk-free rate of 2.7, is that correct? 25 A Two point seven four percent.

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Coleman - Cross/Nelson 1 Q Are you aware that the Committees expert has ultimately

51

2 come up with a 3.7 rate -- risk-free rate? 3 A 4 Q Yes. So ultimately the risk-free rate that youve used in

5 calculating the WACC was 100 basis points less than what the -6 was proposed by the Committee, correct? 7 A 8 Q Those numbers would suggest that, yes. And if you use your rate that you used for the risk-free

9 rate, the present value would be far higher than in analyzing 10 Dr. Mullins proposed liabilities, is that correct? 11 A The lower the discount rate, the higher the present value Its a mathematical formula. You also testified earlier about VEBA and

12 will be. 13 Q

All right.

14 those are retirees claims, is that correct? 15 A 16 Q For the most part, yes. All right. And these are retirees who have chosen to work

17 at a particular company? 18 A They previously worked for that company, theyre now

19 retired. 20 Q Right. And those liabilities are a result of contractual

21 obligations? 22 A For the most part, yes. Not all of them by the way, but

23 for the most part. 24 Q 25 But for the most part. MR. NELSON: No further questions, Your Honor.

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Feingold - Direct/Houff 1 2 3 excused? 4 5 again? 6 7 8 9 THE COURT: (No audible response) Youre excused. Thank you. THE COURT: Anyone planning to call the witness THE COURT: Redirect? No, Your Honor. May the witness be

52

MR. JACKSON:

THE WITNESS: MR. HOUFF:

Thank you, Your Honor.

Your Honor, may I be excused to go get

10 Dr. Feingold and bring him to the stand. 11 12 THE COURT: MR. HOUFF: Yes, do you need a recess? Well go -I just Let me

No, I think were pretty good.

13 want to make sure that -- okay, Ill be fine I think. 14 just make sure my -- Im fine, if I may be excused. 15 16 17 THE COURT: Yes.

DR. ALLAN FEINGOLD, WITNESS, SWORN COURT CLERK: You may be seated. Please speak into

18 the microphone. 19 20 21 22 23 BY MR. HOUFF: 24 Q Good morning, Dr. Feingold. Would you introduce yourself MR. HOUFF: The middle button. Okay. Good morning.

THE WITNESS: MR. HOUFF:

Got it, perfect. DIRECT EXAMINATION

25 to the Court, please?

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Feingold - Direct/Houff 1 A Good morning. My name is Dr. Allan Feingold and I am a

53

2 lung specialist, a physician in practice in Miami, Florida. 3 Q Okay. Dr. Feingold, I have asked you to bring with you to

4 the witness stand several documents that I am going to also 5 provide to the Court and counsel as demonstrative, do you have 6 an affidavit that you completed? 7 A 8 Q 9 A 10 Q 11 A 12 Q 13 A 14 Q Yes, sir, I do. Okay. I do. And a copy of your initial report dated August 14th, 2012? Correct. Yes, I do. And do you also have your curriculum vitae?

A copy of your rebuttal report dated September 21, 2012? Yes, sir. And a presentation, a PowerPoint presentation that we --

15 you had prepared for today? 16 A Correct. I have it in paper form and I see its on the

17 computer. 18 Q 19 Okay. MR. HOUFF: Thank Your Honor. Your Honor, with your

20 permission, Id like to approach and provide these documents to 21 the Court. The affidavit is Debtors Demonstrative 19, the

22 curriculum vitae is Debtors Exhibit 126 which I will move as 23 soon as the doctor agrees or agrees that its accurate, 24 Debtors Demonstrative 20 is the report dated August 14, 25 Debtors Demonstrative 21 is the rebuttal report and Debtors

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Feingold - Direct/Houff

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1 Demonstrative 22 is the PowerPoint presentation for today, may 2 I approach? 3 THE COURT: Yes, thank you. Give me one second, Mr.

4 Evert, please.

So Ive got Debtors Exhibits Demonstratives

5 19, 20, 21 and 22 and then a substantive report, 126. 6 7 MR. HOUFF: THE COURT: 126 is Dr. Feingolds CV. Okay. Thank you.

8 BY MR. HOUFF: 9 Q Dr. Feingold, would you take a look at what Ive marked as

10 126 which is your curriculum vitae, do you see that? 11 A 12 Q 13 A 14 Q 15 A 16 Q 17 A 18 Q 19 A 20 Q 21 22 23 I dont, I mean, I have my copy, but -Okay. Yes. Okay. Is that complete and accurate? All right. Yeah, let me ask you to look at this.

It is, yeah. Sorry. Yes. -- Dr. Feingold? Yes, sir. Okay. MR. HOUFF: THE COURT: MR. GEORGE: Your Honor, I move the admission of 126. Any objection? Not an objection as long as theyre just It is. Is that complete and accurate --

24 for demonstratives. 25 THE COURT: No, this is the substantive.

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Feingold - Direct/Houff 1 2 coming in. 3 4 5 MR. GEORGE: THE COURT: MR. HOUFF: Okay. No objection. MR. HOUFF: The CV, I think we agreed the CV is

55

Exhibit 126 is admitted. Thank you, Your Honor.

6 BY MR. HOUFF: 7 Q Doctor, can we agree that you will express all of your

8 opinions in this testimony on direct or cross examination or 9 questions from the Court to a reasonable degree of medical and 10 scientific certainty? 11 A Yes, sir. I understand that is what Im supposed to do

12 and I will do it. 13 Q Okay. Doctor, weve prepared a couple of slides or

14 youve prepared a couple of slides that illustrate your 15 clinical practice and who you are, would you please take a few 16 moments and explain to the Court what your history is as a 17 pulmonary specialist and occupational medical physician and 18 your forensic medical and legal work? 19 A Yes, sir. I went to school at McGill University and I graduated with an

20 McMaster University in Hamilton, Ontario.

21 M.D. degree in 1975, so Ive been a doctor for -- since 75, 22 but I moved to Miami, Florida with my wife in 1982, so thats 23 30 years that Ive been there. And Ive served there in that

24 hospital which is large not for profit institution, one of the 25 big Miami hospitals for many years.

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Feingold - Direct/Houff 1 For 25 years, I was the chief of the division of I am a lung specialist, a clinician. I

56

2 pulmonary medicine.

3 took care of sick people on a active daily basis, I still do. 4 But my initial years, decades at South Miami Hospital, 5 primarily I took care of very sick people in the intensive care 6 units and other facilities at South Miami Hospital. During

7 that period of time, I was also part of the administration of 8 the hospital, a member of the Board of Directors of the 9 hospital, the founding chairman of the Medical Ethics Committee 10 and I was on the many different committees in that institution. 11 Over the years, I developed increasing interest in

12 occupational lung disease and in other aspects of medical/legal 13 medicine, that is the interaction between medicine and law 14 sometimes called forensic medicine, in particular, forensic 15 pulmonary medicine, and increasingly I did that kind of work 16 over the years. 17 If you go to the next slide which I prepared, youll

18 see that my emphasis over the years has been the serious 19 diseases that afflict people as far as their lungs are 20 concerned. 21 medicine. Pulmonary medicine is a sub-specialty of internal I am board certified in internal medicine and And the

22 pulmonary medicine because they usually cross over.

23 diseases Ive taken care of are being primarily lung cancer, 24 emphysema, pneumonia, asthma and all of the complications that 25 those things create, both for people who just come in with

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Feingold - Direct/Houff 1 acute disease or people who come in with some other illness, 2 for example, surgery or trauma. 3 And then as far as forensics is concerned, mostly

57

4 what Ive done has been in relation to asbestos exposures, 5 tobacco cases and a wide variety of other kinds of things, 6 explosions and fires and mining accidents and all kinds of 7 things of that nature. 8 Q Doctor, your slide indicates the United States and

9 Florida, what is -- whats the significance of that? 10 A Well, the most of the cases that I saw years ago were in

11 Florida, but over the years, my practice has become more 12 national as far as the forensic cases are concerned. I see

13 cases, individual patients who travel to Florida, to Miami to 14 see me or Im involved in medical/legal matters from in most 15 states in the United States. 16 So Ive testified, Ive evaluated cases, Ive

17 testified in cases in not in every state, but I think, by now, 18 its most states, for all kinds of entities, for plaintiffs and 19 for defendants, for government agencies, for the military, for 20 a wide variety of different interests. 21 Q And over the 25 years that you have been in the forensic

22 practice, have you earned a substantial amount of money? 23 A Yes, I have and the organization that I set up which is

24 called Feingold Medical Legal, its the technical or billing 25 arm of our organization, has made a substantial amount of money

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Feingold - Direct/Houff 1 including the money that was billed for the activities of the 2 people who work there. 3 Q And have you been consulted by the United States Justice

58

4 Department in connection with tobacco work? 5 A Yes, I was. I participated in the initial preparation of

6 an action which was a RICO action against tobacco industry, I 7 lectured at United States Department of Justice. 8 Q Okay. And has your work on the tobacco side generally

9 been for plaintiffs or at the request of plaintiffs? 10 A Yes, its been almost 100 percent for plaintiffs. There

11 have been some peculiar cases where I testified about the value 12 of evidence that certain companies gave to the Government. 13 essentially Ive been retained by individuals or groups of 14 individuals in mass tort cases or by states and by certain 15 countries. 16 Q And when you mentioned your board certification, are you But

17 also board certified or its equivalent in both internal 18 medicine and pulmonary medicine in Canada? 19 A I am in -- board certified in internal medicine in Canada

20 and pulmonary medicine in Quebec and internal medicine in 21 Quebec. They have separate boards in different province. They

22 see things differently, but, in any case, I have five board 23 certifications total. 24 Q And do you also have any particular expertise in radiology

25 and imaging?

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Feingold - Direct/Houff 1 A I do. Pulmonary medicine is a crossover specialty to

59

2 begin with and pulmonary radiology, as well as certain other 3 aspects of radiology, are one of the pillars, if you wish. 4 Pulmonary medicine is sort of can be seen as a -- as an entity 5 that sits on four pillars. Radiology is one of them, clinical

6 internal medicine is another, epidemiology is a third and 7 pathology, a fourth. So pulmonary medicine is really a

8 crossover of those specialties. 9 Imaging, we used to call it radiology, its not just

10 radiology anymore, now its MRI and other things, but imaging 11 is a fundamental part of pulmonary medicine. Ive had a

12 special interest in it all of my academic and clinical life and 13 particular attention, Ive spent particular attention in 14 pulmonary radiology and I have special certification. I am

15 certified by NIOSH, National Institute for Occupational Safety 16 and Health, as a B Reader. 17 Q 18 A And that is what? Well, a B Reader, its a funny name. Its a group of

19 doctors identified by NIOSH as a result of the 1977 Coal 20 Workers Act of Congress. That act determined that a certain

21 group of doctors would be selected to interpret X-rays of 22 individuals exposed to occupational dusts, like coal and silica 23 and asbestos. Theyre very few such doctors in the world. The

24 United States manages this system, the B Reader system, and in 25 the world there are approximately 400 B Readers, I am one of

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Feingold - Direct/Houff 1 them. 2 Q Okay. And do you also have -- have you also have

60

3 developed an expertise in pathology? 4 A Yes. As I said before, pulmonary medicine really is based

5 to an important degree on pathology and pathology is part of 6 the educational process of all young pulmonary doctors. But in

7 my case, in particular, like my special interest in radiology, 8 I also developed a special interest in pathology. I was

9 mentored at my elbow at the microscope by a famous professor of 10 pathology, Mario Saldana. Dr. Saldana, who is my friend and

11 mentor, and I studied pulmonary pathology beyond what pulmonary 12 doctors typically do. 13 I have -- I am the person who does all of the Thats a specialty in

14 photomicrography in our hospital. 15 itself.

Its not just the process of taking photographs, its

16 the way of demonstrating the pathology of cases using special 17 cameras associated with the microscope and Ive done that of 18 decades now. 19 Q And do you do that both in your clinical practice as well

20 as your forensic practice? 21 A I do it in three things, I do it in my clinical practice I review the pathology of all If Ive sent them for a biopsy

22 for my own patients who I see. 23 or almost all of my patients.

24 or a pneumonectomy, which means to remove the lung, or a 25 lobectomy, I will see the lump tissue of that patient. I do it

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Feingold - Direct/Houff 1 for medical/legal forensic cases whenever the pathology is 2 available, I will look at the pathology. And I do it for the

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3 hospital, that is, for other doctors, my colleagues who I work 4 with on a regular basis in the pathology will ask me to review 5 cases with them in order to do photomicrography for the purpose 6 of publication, for example. 7 Q And, Doctor, have you also developed an expertise in

8 epidemiology? 9 A Yes. Again, the pillar of pulmonary medicine is I have developed special interests and special I was particularly interested in

10 epidemiology.

11 training in epidemiology.

12 computer analysis in medical issues, that was my research in my 13 training program. And I have -- I actually have a -- some

14 special training in computer analysis and computer programming. 15 I have a diploma, for example, in relational database Ive used that knowledge in my study of pulmonary

16 programming.

17 medicine to develop specialized computer programs, some of 18 which have been published, some of which have been sold. 19 Q Doctor, in looking at your CV, I note that you have very

20 few peer review publications, is there a reason for that? 21 A Certainly, I didnt go that route. I was attracted to it

22 when I was in -- first in training, but decided ultimately not 23 to do it and then I spent decades as a clinician, so Im not 24 the kind of academic. Im not an academic, so that has not

25 been my goal or purpose in my career to study the literature

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Feingold - Direct/Houff

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1 and, excuse me, to study original data and produce literature, 2 but Ive applied literature. 3 So in my individual case, Im not an academic, Im a

4 clinician, but Ive been a clinician who has recommended based 5 on the analysis of the published literature to the hospital and 6 to, in many arenas, what the published literature actually 7 explains and how to apply it to individual cases. The

8 application of general causation in individual specific 9 causation cases is, for example, the kind of thing Ive done, 10 but not in publication, in practical day-to-day medicine. 11 Q 12 Thank you. MR. HOUFF: Your Honor, we would offer Dr. Feingold

13 as an expert physician, internist, pulmonary specialist, a B 14 Reader for chest X-rays and imaging studies with expertise in 15 diagnostic pathology, epidemiology and in database creations. 16 THE COURT: Okay. You need to repeat that for me.

17 That was a very long offer for an expert. 18 MR. HOUFF: Im sorry, Your Honor. I dont know if I

19 can do it a second time, but Ill try, internist, physician, 20 pulmonary specialist, B Reader for chest X-rays and with 21 expertise in imaging studies, diagnostic pathology, 22 epidemiology and database construction. 23 24 objection? 25 MR. GEORGE: No, maam, no objections, Your Honor. THE COURT: All right. One second. All right. Any

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Feingold - Direct/Houff 1 THE COURT: All right. Doctor is so offered and

63

2 certified as an expert in internal medicine, pulmonary 3 specialty, B Reader with expertise diagnostic pathology, 4 epidemiology and database construction. 5 MR. HOUFF: Thank Your Honor.

6 BY MR. HOUFF: 7 Q Doctor, turning to this case, as you know, were here to

8 estimate only mesothelioma, to that end, I believe you prepared 9 some slides that will express your opinions and help orient the 10 Court to the disease mesothelioma? 11 A 12 Q 13 A Yes, sir. Okay. I think we have Slide 3 up. Mesothelioma is an uncommon cancer. There is It is a

Very good.

14 disease which currently is generally fatal. 15 treatment, but it is not curative.

This cancer develops in the Its

16 layer of cells which line our body cavities in the chest. 17 called the pleura.

In the abdomen peritoneum, but the kind of

18 cells are basically the same. 19 We know today, after decades of study, if you go to It is the result in

20 the next slide, how mesothelioma develops.

21 most cases, not in all cases, of an interaction between 22 peritoneal or pleural cells, so thats mesothelial cells, not 23 the lung tissue cells, not cells of inside the abdomen, but 24 mesothelial cells like in the pleura or peritoneum, interaction 25 between those cells and fibers of asbestos.

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Feingold - Direct/Houff 1

64

In the photograph you see here actual asbestos fiber.

2 I took this photograph at very high magnification, I think this 3 was at 1000X, where one can see it looks like a beads on a 4 string. Those beads are actually concretions of iron molecules

5 attracted to a tiny white fiber, a white clear fiber in the 6 middle. In this resolution, its not actually possible to see

7 the fiber, but under the microscope, its possible to see a 8 thread-like fiber between those beads. 9 Q 10 A And -- Im sorry. -- the interaction between that and the mesothelial cells Thats asbestos, so --

11 results many years later in this disease, mesothelioma. 12 Q Doctor, and just what does the medical and scientific

13 literature tell us about the likelihood of the type of fiber 14 that makes these -- that causes the formation of these asbestos 15 fibers? 16 A Well, the answer to that is primarily from the

17 epidemiology, meaning we know today reliably which kind of 18 people get mesothelioma, what their exposure needs to be to get 19 mesothelioma. The exact mechanism, how the fibers interact We do know that

20 with the mesothelium is not as well known.

21 chrysotile asbestos, which is one particular kind of asbestos, 22 Im going to talk more about that, is much less likely to be 23 present and to remain in interaction with the mesothelium than 24 are other kinds of fibers called amphibole fibers. 25 Q Okay. Sticking with the discussion of mesothelioma and

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Feingold - Direct/Houff 1 epidemiology and turning to Slide 5, what does this slide 2 demonstrate? 3 A This shows a little bit more detail about the nature of I said before the disease is not common.

65

4 the disease.

5 Consistently, in the last decade, couple of decades, there have 6 been about 2700 cases a year. In this state of Pennsylvania,

7 there are approximately 200 cases a year which makes it a very 8 uncommon disease. In the United States, there are The death

9 approximately 2.4 million deaths a year currently.

10 rate for everything is going down or just about everything is 11 going down. A death rate of 2.4 million out of 330 million or But in comparison

12 so people is very low as a matter of fact.

13 to the total death rate, mesothelioma represents about a tenth 14 of a percent and in comparison to cancer deaths, there are 15 approximately half a million cancer deaths a year in the United 16 States and going down. 17 percent -18 THE COURT: But could you go back, please, you Im sorry, Doctor. But, of those, about .5 or half a

19 changed the slide too fast. 20 21 22 MR. HOUFF:

That one, Your Honor? Yeah. All right. Thank you. There are

THE WITNESS: THE COURT:

Yes.

23 -- Im sorry.

Of all of the U.S. cancer deaths, meso

24 represents .5 percent? 25 THE WITNESS: Yes, Your Honor. Its about half of a

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Feingold - Direct/Houff 1 percent of all the cancer deaths in the United States. 2 3 A 4 Q 5 A THE COURT: Now -Slide 6? All right. Thank you.

66

-- we do know, going back to a previous question you asked

6 me, we do know what causes mesothelioma for the most part, not 7 in every single case, but for the most part. At least in men,

8 and a great majority of mesothelioma cases are in men, the 9 majority of those cases are caused by remote, that is, 10 temporally remote, from a long time ago, exposure to a kind of 11 asbestos that was primarily used in warship construction during 12 World War II and in other kinds of construction after the war, 13 for example, pipe insulation. In this image, Ive taken a Hes

14 historic picture where you could actually see a worker.

15 not very visible, hes down in the right lower hand corner 16 underneath huge pipes which are insulated thickly with amosite 17 containing asbestos. This is one particular kind of asbestos

18 used -- that was used in civilian applications primarily in 19 pipefitting. 20 Q 21 A Turning to Slide 7, sir. Fifteen years seems to have been the minimum amount of I said that previously. I said that mesothelioma is

22 latency.

23 a disease that occurs after a certain amount of period of time, 24 it doesnt happen after a week, it doesnt happen after a year 25 and currently, it doesnt happen after 15 years, its more like

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Feingold - Direct/Houff 1 30 years. 2 Q And have you also prepared some slides to express your

67

3 views about the mineral that is generically known as asbestos 4 and how the various asbestos types differ? 5 A 6 Q 7 A 8 name. Yes. Please. Asbestos is a commercial name, its not actually a mineral It includes two basic families; the serpentine family,

9 snake-like if you wish, curly fibers of which theres really 10 only one important member called chrysotile, most of which came 11 from Quebec mines, and the amphibole family which are the 12 commercial amphiboles, crocidolite, amosite, and the 13 non-commercial amphiboles, tremolite, actinolite and 14 anthophyllite. Those are the six kinds of asbestos regulated There are, however, other forms of

15 in the United States.

16 asbestos including winchite and richterite in the United States 17 that are important, as well. 18 If you go to the next slide, youll see why Its curvy and snake-like if

19 chrysotile is called serpentine.

20 you wish, whereas amosite and crocidolite are needle-like. 21 And if you go to the next slide, the more important

22 difference turns out to be the content of iron in these 23 minerals. These minerals are significantly different. They

24 have certain properties that are the same, for example, 25 insulation properties for heat which is why they were used in

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Feingold - Direct/Houff 1 warships. Warships are essentially powered by steam.

68 Whether

2 they are atomic powered originally or diesel powered, theyre 3 steam ships. 4 5 insulated. Steam pipes have to be insulated.

Also in big buildings, steam pipes have to be Chrysotile and commercial amphiboles have a common

6 feature, that is, that they are insulators, but they have a 7 very important difference in that the ideal formula, youre 8 seeing the ideal chemical formula here, contains a significant 9 amount of iron as far as the amphiboles are concerned. 10 Q 11 Fe? 12 A 13 Q 14 A 15 Q Fe. Thats iron? Right. Okay. Now, Doctor, have you also prepared a series of Okay. And going back to my high school chemistry, thats

16 slides to express your opinions and the results of your 17 research concerning the review of the literature about the 18 history and epidemiology related to the various forms of 19 asbestos and their ability to cause mesothelioma in humans? 20 A 21 Q 22 A Yes, sir. I have.

Would you please continue with Slide 11? There is a large body of medical literature, I should say

23 medical, scientific, epidemiological, mineralogical literature 24 that has been published over approximately 100 years that 25 pertains to this topic and the total number of pages is in the

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Feingold - Direct/Houff 1 thousands. There have been some extremely important signpost

69

2 articles published over the decades.

I have selected a few to

3 discuss just to give a -- the historical overview, but there 4 are a great many of them. 5 To begin with, there were a wide variety descriptions

6 of the mining of asbestos in South Africa and Australia and 7 Quebec. Those are the main areas. South Africa, very

8 important because it was a source of most of the commercial 9 amphibole asbestos used in the United States, that was 10 crocidolite and amosite. 11 Now, during World War II, I mentioned previously, It was regulated

12 asbestos was a strategic mineral -- material.

13 by the war production board and that was because amosite was 14 the kind of asbestos used to insulate the pipes on the huge 15 number of warships that we produced during the war. We

16 produced hundreds of destroyers, each destroyer had -17 contained tons of amosite asbestos insulation. 18 Well after the war in 1960 came a report from a far

19 away part of the world in an obscure journal, the British 20 Journal of Industrial Medicine, reporting on a rare cancer, the 21 nature of which had not even been confirmed as a separate 22 entity until some years before this, about the 1950s, that is, 23 mesothelioma as a disease was recognized in the 1950s. 24 was much confusion about it over the years. 25 And in 1960, Wagner and his associates from South There

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Feingold - Direct/Houff 1 Africa reported that they had identified 33 cases of this 2 peculiar disease, which was not tuberculosis, from an area in 3 the Cape area of South Africa.

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The disease was not identified

4 in the United States until about five years later when an 5 important scientist, Irving Selikoff from New Jersey, reported 6 that some cases of mesothelioma were being identified in the 7 New York/New Jersey area. 8 The reason that was so important, Selikoff said at

9 the time and as I understood in retrospect studying Selikoffs 10 papers, was that up until that point, the only cases of 11 mesothelioma that had been recognized had come from this 12 special part of South Africa, only the Cape Northwestern 13 Province of South Africa. 14 the disease was not seen. 15 But here, in 1965, cases were identified, so Dr. Even in other parts of South Africa,

16 Selikoff asked and in retrospect other people asked, as well, 17 if cases could be found in New York, were other forms of 18 asbestos also the cause of mesothelioma because in the United 19 States we did not use much crocidolite? 20 as far as amphibole is concerned. We used mostly amosite

Well, there was an answer.

21 It came in 1972, ultimately Dr. Selikoff revealed and reported 22 that cases were being seen in a group of workers who had been 23 employed in a special plant that made amosite cement for the 24 United States Navy. 25 Another issue was whether or not chrysotile asbestos

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Feingold - Direct/Houff 1 also caused mesothelioma. It ultimately was learned that a

71

2 very small contaminant quantity of an amphibole asbestos was 3 present in chrysotile. This became much better studied later,

4 but heres a report from 1990 where it was learned that about a 5 third of samples of chrysotile asbestos contained a very small 6 amount of something called tremolite. 7 And if you go to the next slide, youll see that

8 various scientists, and Ive studied their papers, have studied 9 samples of chrysotile, which is the asbestos that comes from 10 Quebec which was the type of asbestos used mostly in the United 11 States, but not in warship construction. 12 was chrysotile. That type of asbestos

There was a special sample, UICC sample, that

13 stands for, in French, the International Union Against Cancer. 14 So this sample of a chrysotile asbestos was tested So thats a

15 and tremolite could not be found in the sample.

16 background, meaning there was an issue, but whether or not 17 tremolite, an amphibole, contaminants chrysotile. Ultimately,

18 when that was studied in 1998, the conclusion was that it does 19 not contaminate commercial chrysotile for the most part, but 20 well get back to that when we continue the -- to look at the 21 development of the published literature. 22 Q 23 A 24 Q Yes, sir. What --

The next step is that is 1982. Thank you. Would you tell the Court now your opinions to

25 a reasonable degree of medical and scientific certainty

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Feingold - Direct/Houff 1 concerning the epidemiology related to the various forms of 2 asbestos and their ability to cause mesothelioma in humans? 3 A

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So the first stage was the identification of mesothelioma Then

4 as a disease, that was 1960 as it related to crocidolite. 5 as it related to amosite in the United States, 1972. 6

The second phase was this much longer period of time The source of it actually was the tragedy

7 which began in 1982.

8 of the use of poison gas on the -- on the battlefield and 9 during World War I. This led Great Britain and the allies to This

10 prepare for the use of poison gas during World War II.

11 led them to produce gas masks for both civilian and battlefield 12 use. These gas masks were produced in Great Britain and in Tens of millions of the gas masks were produced. In Great Britain, some of the factories specialized

13 Canada. 14

15 in the production of gas masks using relatively cheap Canadian 16 chrysotile asbestos. Also in Great Britain, some of the

17 factories specialized in the use of crocidolite asbestos from 18 South Africa and the two different factories were pretty much 19 separated. This is an example of women at a plant, the Avon

20 rubber plant, a famous rubber plant in England, where they were 21 producing, by hand, gas masks. These were military gas masks

22 produced by hand using crocidolite asbestos. 23 If you go on, youll see that theres a result of,

24 next slide, is the result of a report from Dr. Acheson 25 (phonetic) who studied what amounted to an accidental

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Feingold - Direct/Houff

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1 experiment on women, an accidental experiment on human beings, 2 because the people who assembled gas masks were women. They

3 did it from before the war all the way through passed the war 4 because gas masks were stockpiled after the war. 5 They were basically two groups of women, those who

6 worked with chrysotile in various plants and those who worked 7 with crocidolite. The women who worked with chrysotile did not 8 develop mesothelioma. The women who worked with crocidolite This

9 did and there starts the process of the epidemiology. 10 1982 was a signpost. 11

The next sign post was another, again, female doctor,

12 Dr. Newhouse, 1989 reporting on another British factory. 13 Britain was an important source of this information because 14 both types of asbestos were widely used, crocidolite from South 15 Africa, chrysotile from Canada. This particular factory was

16 large and extraordinary detailed information was available no 17 what the different people used. 18 It became perfectly clear in this paper that dealt

19 with the production of friction products, like brakes, that 20 those workers who worked with crocidolite developed 21 mesothelioma even though in the total duration of that 22 factorys existence the amount of time that crocidolite was 23 used was brief. The other people in that factory who used

24 chrysotile and only chrysotile, excuse me, did not develop 25 mesothelioma which brings us to the next step.

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Feingold - Direct/Houff 1 In the 1970s and 1980s, the original data was

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2 available from Quebec regarding Quebec asbestos miners who 3 developed mesothelioma and were found surprisingly to have an 4 enormous amount of tremolite in their lungs. Remember, I said

5 that commercial chrysotile contains virtually no tremolite, so 6 where did they get it from? 7 Well, going on, in Churg 1993, what was detected was

8 that in some miners who worked in Thetford Mines, that was one 9 of the two main Quebec mining areas for asbestos, some of those 10 miners had enormous tremolite burns in their lungs. As it

11 turns out, tremolite is the exception that proves the rule. 12 If you go on to the next paper, in 1997, three papers This was the culmination of work that began in

13 were published. 14 the 1960s.

All the way from 1965, there was a special

15 conference headed by Dr. Selikoff, attended by the McDonalds, 16 Alison and Corbett McDonald, Alison has recently died, these 17 two scientists continued to work into their 90s, both in 18 England and at McGill. These scientists, as well as their

19 team, demonstrated that chrysotile asbestos miners in Quebec 20 did not develop mesothelioma unless they worked in one of five 21 mines in Quebec. 22 Those five mines, more specifically in Thetford as

23 you can see in the next slide, if you go to Slide 26, those 24 miners who worked in Thetford Mines in the -- what they called 25 the five central mines, particularly something called the bell

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Feingold - Direct/Houff 1 pit, those people developed mesothelioma, not very many of 2 them. There were a total of 25 cases in approximately 100

75

3 years, but they developed it because they had encountered veins 4 of tremolite compared to their brothers, literally their 5 brothers, who worked in another town down the road, Asbestos, 6 Quebec, where the mine was much less contaminated with 7 tremolite. 8 The miners, the few miners who worked with tremolite,

9 rather who were exposed to veins of tremolite, some of them 10 developed mesothelioma. The miners who worked in another pit

11 called the Jeffrey Pit in Asbestos, Quebec did not unless they 12 also worked with crocidolite asbestos that had been imported to 13 Quebec. Bottom line, Quebec demonstrated that chrysotile And

14 asbestos does not result in deaths from mesothelioma.

15 tremolite asbestos can, but only at extremely high levels of 16 exposure. 17 This was -- this study was actually further proven by Not only did

18 a special study on spouses of the workers.

19 workers in the Jeffrey Pit, which was not much contaminated by 20 tremolite, not get mesothelioma, their spouses did not get 21 mesothelioma. In Thetford, the men who worked in the

22 peripheral mines who were not very contaminated by tremolite 23 had spouses who did not get mesothelioma. But the unfortunate

24 men who worked in the five central mines heavily contaminated 25 by tremolite which never got to a commercial chrysotile, those

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Feingold - Direct/Houff 1 mens wives actually had a small but significant number of 2 cases of mesothelioma. 3 Q

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Doctor, did I ask you to analyze the plaintiff information

4 questionnaires in this case to see if you could reach 5 conclusions about the likely percentage of persons who allege 6 mesothelioma against these debtors, whose cases have medical or 7 scientific merit as it relates to the causation of mesothelioma 8 from the products of these debtors? 9 A 10 Q 11 A Yes, sir. You did.

Were you able to accomplish that analysis? I was. If you go to the slide -- this slide shows it.

12 You gave me information on 2765 patients, individual patients, 13 who reportedly suffered from mesothelioma and I was asked to do 14 exactly what you said and I classed -- described it as to 15 evaluate the data, confirm the diagnosis, characterize the 16 population, meaning the 2765 patients, and attribute causation. 17 If you go to the next slide, youll see my strategy. 18 Q 19 A Please. The first issue is a limitation of analyzing 2765 That is a daunting task. Its a very large number

20 patients.

21 of people, it would take a very large amount of time to do it 22 and this leads naturally to the standard approach which is 23 sampling. We, in science and medicine, and as far as thats If we want to know

24 concerned, economics and politics, sample.

25 more or less who is going to win the next election, we can do a

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Feingold - Direct/Houff 1 pole which is basically a sample of the population. 2 The goal was to be able to identify a sample that

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3 would be representative of the total population of 2765, 4 therefore, I needed to have some kind of strategy with which to 5 sample this population. 6 Q Would you please explain to the Court your opinions and

7 your procedures and methodology regarding how you went about 8 the sampling? 9 A The procedure and methodology was standard. In fact, its

10 not just standard in medicine and science, its universal. 11 Its called sampling and sampling is based on a couple of 12 concepts. Number one concept, if you want to know what the

13 overall population characteristics are you can select some 14 group from within that population. 15 Now, generally speaking the larger the group that you

16 select, the more likely it is that the group will be 17 representative. If you sample ten times, youll get ten

18 different results unless you sample exactly the same people. 19 But if you randomly select ten different samples, youre going 20 to get slightly different results. The only way to know for

21 sure what the total population characteristics are is to 22 investigate or interrogate every case which is generally not 23 possible. 24 The two concepts are, number one, confidence

25 interval, that is, its a percentage or a proportion, in

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Feingold - Direct/Houff

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1 statistics its called a proportion, of the population that has 2 a certain characteristic. Lets say well take all of pleural Thats one

3 mesotheliomas, what proportion are epithelioid? 4 kind, one pathology.

The number happens to be in this

5 population 69 percent, but the question is if the 69 percent 6 fall within a range of error, and well get to the error size 7 in a minute, but generally speaking a confidence interval means 8 plus or minus. And you see it in poles and newspapers, that

9 such and such person will win the election plus/minus a 10 confidence interval of three percent, four percent, whatever. 11 Its typical to choose a confidence interval of about five 12 percent, it doesnt have to be, but it can -- its typical and 13 common to use five percent. 14 That means if 69 percent of the sample had

15 epithelioid mesothelioma, you can be sure that not less than 69 16 minus five, which is 64 percent, and not more than 69 plus 17 five, which is 74 percent, of the total population would have 18 that kind of mesothelioma. How sure would you be? Thats the

19 confidence coefficient or confidence level. 20 Look at this slide for a moment. It is -- appears

21 daunting at first, but its not.

Dont be bamboozled by math. It means the proportion

22 This math is actually very simple.

23 which is T with a little squiggle on top of it, minus the Z 24 number, which is the confidence coefficient, what does that 25 mean? We want to be 95 percent sure. In this case, were

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Feingold - Direct/Houff 1 choosing a confidence coefficient of 95 percent. 2 and almost universal in studies.

79 Its standard

I want to be 95 percent sure

3 that the proportion that I have is plus/minus five percent, 4 thats how its done. 5 Go back one slide for a second. So the confidence coefficient is 95

There you go.

6 percent certain that the number I find, lets say in this case 7 69 percent, will be in the population, in the overall 8 population, will be representative of the overall population. 9 The overall population will have epithelioid mesothelioma 69 10 percent of the time plus/minus five percent and Im 95 percent 11 confident. Sampling is about confidence, confidence level,

12 confidence levels and intervals. 13 Q 14 A 15 Q 16 A And -So thats what this -Go ahead. -- curve looks like. The overall shape is the familiar

17 bell-shaped curve and that just means that most things in 18 biology, from the type of cancer, height, for example, the -19 your LSAT score in -- because my son just took the LSATs, LSAT 20 score, it all falls into a bell-shaped curve, most natural 21 things do and how sure are we that any one number is 22 represented of the whole population? 23 24 this? So thats what we approach this and why did I do To solve for N. As you can see, N is the sample size.

25 I wanted to know how big a sample size I had to use and, in

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Feingold - Direct/Houff 1 fact, this is done, I mean, you can do it with a calculator, 2 but its done normally now with computer software, standard 3 software, I plugged in the numbers. I said I dont want the

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4 confidence interval to be larger than five and I want to be 95 5 percent sure. 6 And we got an N of 336.

There are subtleties to this which are the subject of

7 whole lectures and math and were not going into that, but one 8 subtlety is that if the differences are big, you know, if, for 9 example, 99 percent of people are going to vote for one person 10 and only one percent of people are going to vote for another, 11 when you do the pole, youre not going to be wrong. The -- in

12 extreme differences, your confidence interval is going to be 13 very small. 14 The problem is we didnt know what the results would We just know that were going to expect the

15 be in advance.

16 worse case scenario which is like 49, 51 and thats the way we 17 plugged in the numbers to get a sample of 336. In fact, when

18 we ran the numbers, the sample size 336 was unnecessarily 19 large, but that just makes things better, more certain that the 20 results are reflective of the whole population. 21 22 Q So now, what did we find? So, well, you, just one step in there so that I

23 understand, you got the number 336, how did you get the 336 24 cases? 25 A I solved for N.

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Feingold - Direct/Houff 1 Q 2 A Okay. But how did you select 336 cases? Theres something called

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Well, that was pretty easy.

3 random number generators.

The concept of random means if I

4 take a whole population two seven six five people and I take 5 the first three letters of the alphabet, there may be bias 6 created by just the alphabetization and Im not sure how the 7 bias would be created, but it might be there. The way to avoid

8 bias and make sure that the sample represents the whole 9 population under the bell curve is to chose individuals at 10 random. And the way to do that is you cant pick them with You have to

11 your finger because your finger might be bias.

12 assign some kind of identifier to each one of those cases, you 13 can use a number, a letter, whatever, and then use a device 14 which randomly selects numbers and then select those cases. 15 So thats what we did, we assigned a number to every

16 one of the two seven six five cases and then we selected a 17 random -- we used a random number generator to produce 337 18 actually cases and we chose those 337 cases for analysis and 19 Im 95 percent certain that this particular sample represents 20 the overall population. 21 Q Okay. And once you had our sample, then how did you

22 proceed? 23 A Well, they I proceeded by creating a strategy for I wanted to know what some of the results would be.

24 analysis.

25 Like, for example, I wanted to know how many of the patients

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Feingold - Direct/Houff 1 would have pleural mesothelioma as opposed to Peritoneal 2 mesothelioma. 3 Now, I created a certain table of diagnoses. The

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4 diagnoses were called D-1 through D-6 and there D-5(a) and 5 D-5(b). These letter/number designations actually described Like, for example, pleural epithelioid

6 different diagnoses.

7 mesothelioma or pleural sarcomatoid mesothelioma or 8 well-differentiated papillary mesothelioma. 9 I then individually and personally went through the Now, many

10 cases and looked at the data that you had given me.

11 of the patients had very typical medical data, that is, they 12 had reports, they had pathology reports, they had the result of 13 immunohistochemical stains which is a way that I and all other 14 doctors now tell whether a disease is mesothelioma or is not 15 mesothelioma. There are all kinds of information. Some did And, in

16 not, some of the 336 cases that we looked at did not.

17 fact, the total number of mesothelioma cases of the 336 that 18 had the disease was about 79 percent, 21 percent did not have 19 in the patient information questionnaire and the associated 20 documents like medical records and pathology reports, did not 21 have a basis for making the diagnosis of mesothelioma. 22 I was gentle about this. I was liberal about this.

23 If there was consistent information that the treating doctors 24 made the diagnosis of mesothelioma, I generally accepted it 25 unless there was glaring evidence that the doctors were wrong.

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Feingold - Direct/Houff 1 But if there was simply no basis for the diagnosis of 2 mesothelioma like I would make in a clinical practice, then I 3 said this is not accepted as a diagnosis, that was 21 percent 4 of the cases. 5 Seventy-nine percent were mesothelioma.

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Then I wanted to know some other things about the

6 results, so I created certain strategies, I wrote this in an 7 Excel database and I created a series of what ifs, if you 8 understand what I mean. This is a way of interrogating the So we coded all 336 of

9 database looking for certain evidence.

10 the patients, designated them with various features in the 11 database and then I counted them. Of course, I used the I created

12 computer to count and the computer did what I said. 13 a formula, how many of the cases are X or Y or Z? 14

And what I found was, in addition to, if you go to

15 the some of the results, so first of all, we go back one 16 second. We used confidence interval as you could see -- a In practice, it

17 confidence interval target of five percent. 18 was lower, smaller, it was better.

A confidence level of 95

19 percent, sample size 336, the random number generator, go next, 20 hand coded, 79 percent were mesothelioma and 21 not. There

21 were 229 pleural mesotheliomas that were caused by asbestos, 22 that is, they were not obviously non-asbestos cases. The

23 number of obvious non-asbestos cases was about three and a 24 third percent. 25 THE COURT: Im sorry, would you go back. I dont

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Feingold - Direct/Houff 1 think I followed what you were just saying. 2 THE COURT: Okay. Yes. Lets look at the pleural

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3 mesotheliomas for a moment. 4 5 6 are. 7 8 THE COURT: Yes.

There were 229 of them.

THE WITNESS:

Of those, you have to go -- there you

UNIDENTIFIED ATTORNEY: THE WITNESS:

You want the next slide? There were 229 plural

Yes, please.

9 mesotheliomas that were not obviously non-asbestos 10 mesotheliomas, that is, they were caused by asbestos to a 11 reasonable degree of certainty as I could determine it by -- as 12 a physician, as I would determine it in a clinical practice. 13 About three and a third, do you see that Number 8 is 3.49, its 14 actually, when corrected, a little less. 15 thats quibbling. 16 But lets say three and a third to three and a half Its about 3.37,

17 percent were spontaneous and that fits in the published medical 18 literature. And thats kind of internal test of the strategy

19 of the diagnostic process that I used and my counting strategy. 20 So if you look at the published literature, youll see thats 21 about right. 22 Of pleural mesotheliomas in men, and these cases were

23 mostly men, is something like 90 plus percent are caused by 24 asbestos. So thats good. And then in comparison, there were

25 17 peritoneal cases in -- now, in comparison to pleural, that

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Feingold - Direct/Houff

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1 means that approximately seven percent of all of the confirmed 2 mesotheliomas were peritoneal. 3 about right. That fits too. Thats just

It should be about ten to 13 to one and thats

4 what it was, so all this fits. 5 Now, you go back before, the previous slide, Im So Ive got something else, I mentioned the

6 almost finished.

7 69 percent epithelioid versus 31 percent sarcomatoid, that fits 8 too. Now, go forward, please. And ultimately what I found

9 was, go next, when I looked at the population that had 10 mesothelioma that I was comfortable with that had a disease 11 caused by asbestos, thats 229 cases, I was able to identify 12 10.92 percent, which is 11 percent roughly, of pleural 13 mesotheliomas. 14 Those people, there were 25 cases, that represents

15 just about 11 percent, those people had pleural mesothelioma, 16 had a disease caused by asbestos, but you had, based on the 17 PIQs, exposure to joint compound alone. They did not have a

18 reliable history, as best as I could determine it to be, of 19 exposure to amphibole asbestos or amphibole and chrysotile 20 asbestos. So this was the question, 11 percent roughly of

21 cases that I was confident in that I had studied and we had 22 interrogated had mesothelioma even though the only established 23 exposure in the PIQ was chrysotile asbestos from joint 24 compound. 25 Now, many of those patients, there were 25, many of

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Feingold - Direct/Houff 1 those patients actually had pneumonectomy or lobectomy, some 2 surgical procedure that would permit, in a different setting, 3 the determination of whether amphibole asbestos or not.

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So if

4 I had had the lung tissue of any of these 25 people, and I did 5 not, but if I had it I could have examined the lung tissue and 6 I could have found or not found asbestos fibers of the type 7 known to cause mesothelioma amphibole. 8 And thats actually whats done in the published It couldnt be done here because I wasnt given It is my belief that, if I had the lung

9 literature.

10 the lung tissue.

11 tissue on all 25 or most of them, what would turn out is that a 12 significant percentage of them, probably the majority, would 13 turn out actually to have amphibole asbestos in their lung even 14 if they cant remember it because they never knew it. 15 thats what the published literature shows. 16 But this is what the sample shows. The sample is 11 And

17 percent exposure only to joint compound and no exposure to 18 anything else. 19 Q Doctor, again, have all your opinions here been expressed

20 to a reasonable degree of medical and scientific certainty? 21 A 22 Q Yes, sir. And did you approach this in the same way that you would

23 approach a clinical case or one of your forensic cases? 24 A In the process of hand coding, when I went to each case

25 and designated it by my diagnostic designators, D-1 thorough

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Feingold - Direct/Houff 1 D-6, and exposure designators, that process I did exactly the 2 same way that I would if I was evaluating a patient, my 3 patient. 4 MR. HOUFF:

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I have no further questions at this time,

5 Your Honor. 6 THE COURT: All right. Why dont we take a ten

7 minute recess and then we will reconvene. 8 9 10 11 12 13 14 ready? 15 16 17 18 19 BY MR. GEORGE: 20 Q Dr. Feingold, I think you told us that you are a board THE WITNESS: THE COURT: MR. GEORGE: Yes. At your -- when youre ready. THE COURT: MR. HOUFF: THE COURT: MR. HOUFF: Okay. Thank you. Thank Your Honor. Thank Your Honor.

UNIDENTIFIED ATTORNEY:

(Recess) Please be seated. Dr. Feingold, are you

All right.

Thank you, Your Honor. CROSS EXAMINATION

21 certified internist and pulmonary specialist, correct? 22 A 23 Q Yes. Now, you would agree with me that when you talked about

24 being an employee of South Miami Hospital, youre currently a 25 voluntary employee of South Miami Hospital, correct?

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Feingold - Direct/Houff 1 A 2 Q Correct. Im under contract, but Im not paid by them.

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And youre also a voluntary professor of medicine,

3 correct? 4 A 5 Q Correct. And what that means is, is no college or university

6 identified you in any course or catalog that someone can 7 actually sign up for? 8 A 9 Q Correct. And in fact you have not had any teaching spots in any

10 classroom, correct? 11 A 12 Q Thats true. Youre not board certified in field of pathology,

13 clinical, anatomical, or forensic, correct? 14 A Correct. I explained pathology is really part of

15 pulmonary medicine, but I am not separately board certified in 16 pathology. 17 Q Correct.

And it is also a subset of internal medicine, occupational

18 medicine, correct? 19 A There is. Its not widely recognized, but youre right.

20 There is -- it does exist. 21 Q 22 A And you havent taken those boards, correct? No. Pulmonary medicine is considered higher than those

23 boards. 24 Q Youre not a member of any occupational medicine

25 societies, correct?

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Feingold - Direct/Houff 1 A Im not sure how you define it.

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For example, Im a member

2 of the American Conference of Governmental and Industrial 3 Hygienists. 4 Q But there is actually a society for occupational medicine

5 specialists and youre not a member of that society, correct? 6 A I am not, but Im a member of multiple other similar

7 organizations. 8 Q 9 A You have no formal degree in epidemiology, correct? That is true, other than pulmonary medicine, which is of

10 course a formal degree in epidemiology. 11 Q You dont have a masters degree in public health,

12 correct? 13 A 14 Q That is correct. I do not.

And part of a masters degree in public health is to talk

15 about epidemiology, correct? 16 A 17 Q 18 A 19 Q Sure, like many other things. Internal medicine as well.

And you didnt get a Ph.D. in epidemiology, correct? No, I do not. I have a F.R.C.P, but no Ph.D.

And there are courses you can take, a course of study that

20 would qualify you as a doctor in epidemiology, correct? 21 A Absolutely, theres such a thing as a Ph.D. in

22 epidemiology. 23 Q You havent done any original research on asbestos,

24 correct? 25 A Correct.

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Feingold - Direct/Houff 1 Q 2 A You havent done any testing of asbestos products? That is true, other than on individual patient cases.

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3 Thats right. 4 Q Well, Im not talking about testing patients. You havent

5 taken any products to determine how much dust is generated when 6 those products are used, correct? 7 A 8 Q That is correct. I do not do that kind of work.

You havent done or participated in any epidemiologic

9 studies of workers exposed to asbestos, correct? 10 A Not exactly. I have, but not of the type that was

11 published.

I was the leader of a group of programmers who

12 studied a -- thousands of cases in Baltimore, a Baltimore 13 cohort, and I was the one who designed the statistical analysis 14 in epidemiology for that group. 15 Q So if I went to the peer reviewed literature, if I went to

16 Index Medicus or I went on a computer and tried to find you and 17 see if you had participated in any epidemiologic studies of 18 asbestos workers, your name would not come up, correct? 19 A Not of the ones that are published. That is correct.

20 Ive done it, but not for publication. 21 Q You talked in your direct about different agencies that Youve never been asked by any governmental

22 youve worked for.

23 agency like NIOSH, OSHA, or the EPA to do any work on their 24 behalf regarding asbestos, correct? 25 A Correct, not on their behalf.

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Feingold - Direct/Houff 1 Q

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You havent written anything in a peer reviewed literature

2 on aspect of asbestos disease, correct? 3 A 4 Q Correct. Thats not the kind of work I did.

You did write an article for Miami Medicine back in 1988

5 entitled Asbestos Medical Facts and The Legal Process, correct? 6 A 7 Q 8 A I did indeed. And -Ive written many things, but within the narrow confines

9 of your question you have been exactly correct. 10 Q You also wrote a book with a lawyer who represents

11 asbestos companies about asbestos medicine on trial, correct? 12 A He did represent asbestos companies. He is an engineer

13 who represents many different kinds of companies and 14 plaintiffs, and I did write the book with him. 15 frontispiece of the book. 16 Q Now, youre not on the board of any medical journals, Thats the

17 correct? 18 A 19 Q Correct. And you dont peer review any articles for any medical

20 journals? 21 A 22 time. 23 Q Nobody comes to you in an asbestos argument and says Dr. Correct. I have done so in the past, but not for a long

24 Feingold critically review this and tell us what your opinions 25 are about that article?

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Feingold - Direct/Houff 1 A 2 Q They do that all the time, but not for publication. But no publication does that, none of the hundred and

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3 thousands of medical publications out there asked you to do 4 that, correct? 5 A 6 Q 7 A Correct. In 1982 you began seeing medical legal cases, correct? I believe I saw them before that, but in 1982 is when I I did see medical legal

8 came to the United States from Canada. 9 cases in Canada. 10 Q

Now, in your entire clinical career, the 30 years youve

11 been in the United States, your best estimate is youve seen 12 ten or so cases of mesothelioma clinically, correct? 13 A Sure, which is a lot for any one particular hospital. You

14 are right, there are only some 100 cases or so in Florida a 15 year. 16 Q Now, you participated in 20,000 asbestos litigation cases,

17 correct? 18 A 19 Q Approximately, yes. And in fact you evaluate between two and 400 mesothelioma

20 cases a year? 21 A Yes. Something like even ten percent of all the cases

22 that occur in the United States per year. 23 Q And theyre sent to you because somebody has retained them

24 to bring a lawsuit and the companies send them to you to 25 evaluate, correct?

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Feingold - Direct/Houff 1 A Essentially. I mean, Im not sure if every step of the

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2 way is correct.

But the cases are sent to me because theyre

3 involved in a medical legal matter. 4 Q And in 98-99 percent of the time in those cases you agree

5 that it is in fact a properly diagnosed malignant mesothelioma? 6 A Most of the time, yes. Its the considerable majority of

7 cases because they tend not to get to me unless they are 8 already confirmed. By the time the case gets to me typically

9 ten other doctors have seen the case. 10 Q So the issue is not retaining you for your expertise in

11 diagnosing mesothelioma because most of these are already 12 confirmed to be mesothelioma cases, correct? 13 A But -- but thats not correct. A significant -- small but

14 significant number of cases, especially contentious ones tend 15 -- turn out not to be mesothelioma and they turn out not to be 16 mesothelioma based on very sophisticated information like 17 tables of immunohistochemical stains, which is something that I 18 do and have developed. 19 Q But in each one of those cases, even in the contentious

20 ones, in each one of those cases theres a board certified 21 pathologist who has made the determination that it is in fact a 22 malignant mesothelioma, correct? 23 A Sometimes incorrectly. The truth is that some of the

24 cases turn out to be a matter of opinion, as expressed by many 25 different doctors, ultimately explained and concluded by, for

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Feingold - Direct/Houff 1 example, immunohistochemical stains or DNA testing, and the 2 selection of that IHC or DNA testing -- something that I do, 3 among other people do it -- can be definitive. So youre

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4 right, there may be a board certified pathologist who said 5 patient X has mesothelioma and then DNA analysis actually shows 6 that it doesnt, and Im involved in that kind of analysis. 7 Q But you agree with me that 99-98.9 percent, a majority --

8 the overwhelming majority of these cases are confirmed 9 mesothelioma cases? 10 A I agree. Theyre not all confirmed with the same type of

11 mesothelioma as originally thought, and not all of them are 12 mesotheliomas. The very contentious cases are not. But youre

13 right, the majority are mesothelioma. 14 Q As an expert witness, youve testified at the request of

15 more than 100 different companies, correct? 16 A 17 Q 18 A 19 Q 20 A I think thats true, yes. Youve testified -And not just --- on behalf of companies that used -Almost finished my answer. Not just 100 companies. All

21 kinds of entities and people all over the world. 22 Q 23 A 24 Q Well, lets just talk about asbestos. Okay. In the asbestos context, youve testified on behalf of

25 companies that made floor tile that chrysotile asbestos in it,

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Feingold - Direct/Houff 1 correct? 2 A 3 Q That is correct. Youve testified on behalf of gasket companies that had

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4 chrysotile asbestos in it? 5 A 6 Q Sure, something like Garlock, for example. Youre right.

Youve testified on behalf of equipment manufacturers who

7 incorporated the chrysotile gaskets into their products, 8 correct? 9 A Correct. Im not sure what you mean by equipment, but I

10 think you mean say steam traps. 11 Q 12 A 13 Q Correct. That would be an example. Youve also testified on behalf of brake manufacturers who

14 -- and car companies that incorporated asbestos brakes in their 15 vehicles? 16 A Yes. I think most of the large automobile companies have

17 retained me over the years. 18 Q 19 A And those car companies use chrysotile asbestos? Well, they did or they had something else produce brakes That is

20 for them that used chrysotile in the United States. 21 correct. 22 Q

And of course you testified on behalf of joint compound

23 manufacturers? 24 A 25 Q That is true. Now, propr to your revelation in 1997 you also used to

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Feingold - Direct/Houff 1 testify on behalf of companies that incorporated amphiboles 2 into their products, correct? 3 A I still do. Im still retained by Certain Teed, for

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4 example.

And there was no revelation.

There was an evolution

5 of medical literature which did represent an impressive turning 6 point in 1997 with whether thats a revelation. 7 sense or not, I dont think so. 8 Q Would you agree with me you send 80 to 90 percent of your In a religious

9 time, not as a clinician, but analyzing medical legal cases and 10 testifying at trial? 11 A In the few years, that is correct. Previously, that was

12 not true. 13 Q Well, in your prior testimony youve said youve done it

14 for at least the last decade? 15 A 16 Q 17 A Thats true -Okay. -- that Ive done a lot of medical legal cases, but ten I see

18 years ago a very high percentage were still clinical. 19 clinical cases every day at this point. 20 majority are medical legal. 21 Q

But overall, the

From January of 1993 to November of 2012, a period of

22 about 19 years, youve participated in 711 depositions, 23 correct? 24 A I myself was deposed. Not that I participated. I gave

25 depositions in that number of cases.

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Feingold - Direct/Houff 1 Q 2 A All asbestos cases? Oh, no. A lot of them were tobacco cases. Im very

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3 well-known as a witness against the tobacco industry and Ive 4 been known for that for coming on 20 years. Many of the

5 depositions I gave over the last 20 years have been because 6 Ive been retained against the tobacco industry. 7 Q But if I went to your list of cases, which I have, and

8 went through those 711 depositions, at least 70 to 80 percent 9 of those depositions are in asbestos cases? 10 A 11 Q 12 A I think probably 70 percent, yes. Youve had 156 trials in the last 19 years? Correct. I have testified in trial, in federal and state

13 courts, as I said previously, in most states in the last say 20 14 years. 15 Q And in fact, my first opportunity to cross examine you at

16 trial was in 2001 in the Broh (phonetic) case in Dallas, Texas. 17 Do you remember that? 18 A 19 Q I see you remember it better than I do. I dont remember.

But in 2004 you were also in the Gill Creek (phonetic)

20 case in El Paso? 21 A I remember being in El Paso. I remember what kind of

22 cancer it was, small cell lung cancer, but I dont remember 23 much else about the case. 24 Q Its a long time ago.

Now, not once in the 30 years youve been an expert have

25 you ever come into any court in the United States and testified

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Feingold - Direct/Houff 1 at the request of a plaintiff in an asbestos case, correct? 2 A I think thats true. Although, my testimony has often

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3 benefitted plaintiffs. 4 so. 5 Q

But, youre right, not been asked to do

Feingold Medical Legal, which is the entity that handles

6 your participation in the medical legal arena -7 A 8 Q Correct. -- actually pays rent for the space for what you term the

9 Department of Occupational Environmental Medicine at South 10 Miami Hospital, correct? 11 A Well, absolutely. It has to. And previously when I did

12 not have that company, I paid rent for the space as required by 13 federal law. 14 Q A doctor cant be given the space by a hospital.

Now, Feingold Medical Legal only has one physician,

15 correct? 16 A 17 Q 18 A 19 Q 20 A 21 Q 22 A 23 Q Currently, thats correct. And thats you? Yes. At times we had more, but right now that is true. We have --

And you have ten employees? I think 12 now, but it varies from time to time. But you own the company? I do. And I think youve testified that 68 percent of the gross

24 billings of Feingold Legal Medical are the profits that go to 25 you, Dr. Allan Feingold, correct?

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Feingold - Direct/Houff 1 A I have certainly testified to that effect before and I

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2 know that that number varies from year to year. 3 Q Well, from 1982 to 1997 your opinion was that exposure to

4 Chrysotile contributed to the development of mesothelioma, 5 correct? 6 A At times, given the specifics of the case, prior to the But Consistent

7 evolution of the medical literature, that is true. 8 generally less and less as we got closer to 1997. 9 with the published literature. 10 Q

And from 1982 when you first started doing this in the

11 United States to 1997, you had grossed about 7.5 million from 12 expert witness activities, correct? 13 A 14 Q I and my company, thats -- I think thats correct. Now, some time in 1997, as you explained on direct, your

15 opinion changed to now, and where it changed in 1997 was, that 16 chrysotile will only cause mesothelioma in exceptional 17 circumstances, correct? 18 A Thats well put. And it did change consistent with the Although, it was changing prior to 1997.

19 published literature.

20 Say in the early 1990's, there was already published evidence 21 that would compel a doctor to conclude that chrysotile was less 22 and less likely the cause of mesothelioma. 23 published thats available. That is whats

But its true that ultimately

24 there was a tipping point, if you wish -- you call it a 25 revelation. I would say a tipping point -- in 1997.

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Feingold - Direct/Houff 1 Q Now, since 1997, looking at two to 400 cases of

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2 mesothelioma a year on behalf of companies that later sold 3 products containing asbestos, you have never come into the 4 courtroom and said that a plaintiffs exposure to any product 5 that contained chrysotile was a significant contributing factor 6 to the development of their mesothelioma, correct? 7 A That is true. That is correct, consistent with the

8 published literature. 9 Q Now, in 1998, 1990 and the year 2000 you made between a

10 million and a million five each year, gross? 11 A Not I. The company grossed. I think thats correct,

12 roughly. 13 Q And in 2001 it was 2.4 million, in 2002 it was 2.65

14 million, in 2003 it was 2.9 million, in 2004 it was 3.2 15 million, 2005 it was 3.9 million, and in 2006 it was 3.2 16 million, correct? 17 A Im not sure, but I think these are figures that I gave

18 with, you know, sheets of information in front of me, and to 19 the extent that I gave that testimony before based on data that 20 I had, it is correct. 21 Q And then youve testified in May of 2004 that as of that

22 testimony in May of 2004 you had grossed -- Feingold Legal 23 Medical, which I dont think even existed in 2004, but -24 A 25 Q Existed in a different form. But whatever that entity was, it had grossed $20 million

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Feingold - Direct/Houff 1 from your participation in litigation activities, correct? 2 A 3 Q 4 A Since? 2004 is what you testified, since you began in -- 1982? Exactly, that was the part of the sentence that was

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5 missing. 6 Q 7 A What we -Since 1982, that is correct. From a period at that point,

8 from 82 to 2004, the total gross billings had been -- I 9 estimated at that time -- approximately $20 million. 10 Q Okay, so from 1982 to 1997 it was 7.5 million and from

11 1998 to 2004 it had increased to 20 million, correct? 12 A Total gross, yes. It wasnt 20 million in a separate

13 period of time, and of course we did become more and more 14 active over the years. Over the many years, the total number

15 of cases seen by my group increased gradually. 16 Q And in fact, you testified that over the last ten years

17 your billings have roughly been between two and $3 million a 18 year? 19 A 20 Q Correct. And largely because of asbestos cases, but also because of As Ive said, Ive been one of

21 very lucrative tobacco cases.

22 the principal witness in the United States and Im going to 23 testify again in the near future against the tobacco industry. 24 Some of those cases represent huge undertakings, big projects 25 like this one, and months of work and long testimony, like a

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Feingold - Direct/Houff 1 week of testimony. That kind of thing.

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So some of the tobacco Also, Ive done many

2 cases represent a significant percentage. 3 other kinds of cases.

80 percent, roughly, of the billing has

4 been for asbestos cases. 5 Q Actually, you testified that 80 to 90 percent, at given

6 points in time, were for asbestos cases, correct? 7 A I think thats fair, given points of time. Its also fair

8 to say that at times -- certain times, more than 50 percent was 9 due to tobacco cases. 10 Q Different kinds of cases over time.

But what youve testified is the average over that last

11 decade, basically, was between 80 to 90 percent of your time 12 was for asbestos cases? 13 A I think thats fair. Im not sure how accurate it is, but

14 roughly speaking, yes. 15 Q And if we added all this up, which I took the liberty of

16 doing, up until 2002 -- I mean, 2012 -- you -- Feingold Legal 17 Medical grossed around 44 and a half million dollars? 18 A 19 Q Over about 30 years, yes. Okay. And of that 44 and a half million dollars, 68

20 percent of that or 30 million plus is profits that went to you, 21 Dr. Allan Feingold, correct? 22 A Over about 30 years, I think thats roughly correct. But

23 I think its a little less than that. 24 Q Now, in this case, I think your bill was $95,000 prior --

25 as of the time of your deposition, correct?

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Feingold - Direct/Houff 1 A I think thats correct, because of months of work that That is correct.

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2 were done. 3 Q 4 A

Now, youre -And we had a team of people. The billing was for the team

5 of people who worked for I think two months on the case. 6 Q Now, youre familiar with Dail and Hammars Textbook

7 Pulmonary Pathology? 8 A 9 Q 10 A 11 Q 12 A 13 Q 14 A 15 Q Dail and Hammar, yes. Certainly.

And you have this actually on your shelf? Yes, I do. And you know Sam Hammer, correct? Reasonably well. Yes, I know him for many years.

And you agree that he is a world-renown pathologist? Ive called him that. And you agree that hes an expert in, not only the

16 diagnosis of asbestos, but in asbestos causation? 17 A Yes. Although, I certainly dont agree with everything

18 that he says and not everything he says has been based on the 19 published literature. He will say or did say certain things in

20 the textbooks that have been superceded, but generally speaking 21 I consider him a very valuable contributor to medicine and 22 science. 23 Q And youve seen his chapter on the neoplasms of the

24 pleura, Chapter 43 of his textbook, correct? 25 A I have, yes.

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Feingold - Direct/Houff 1 Q

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And in that textbook he says that theres no lower minimal

2 threshold level of exposure to asbestos that has been 3 delineated below which theres no increase in the risk of 4 malignant mesothelioma and most authorities approach causation 5 of mesothelioma by asbestos from the perspective of a 6 no-threshold model, correct? 7 A He does say that, but it is not correct. And published

8 literature demonstrates that their no-threshold model is not 9 true in mesothelioma. What is true, and theres an element of

10 truth in this, is that the amount of asbestos required to 11 induce mesothelioma is small. 12 Q Now, he says that one factor that emerges from the Peto

13 model and its modifications, is that when there are multiple 14 asbestos exposure each contributes to cumulative exposure and 15 hence to the risk and causation of malignant mesothelioma 16 within the appropriate latency interval. Thats Dr. Hammars

17 opinion that he put in a textbook thats one of the most widely 18 used pathology textbooks in the United States, correct? 19 A Yes. But youve misrepresented it. Im very familiar

20 with the Peto model, having written computer programs to solve 21 it, and thats not what it means. 22 context. Youve taken it out of

What it means is the development of mesothelioma is

23 more time related, a function of time to the power of three, 24 3.2, than it is dose related. 25 deals with. Thats what the whole Peto model

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Feingold - Direct/Houff 1 Q

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Nothing in Dr. Hammars textbook, nothing in Chapter 43,

2 says anything to the effect that mesothelioma is caused almost 3 exclusively by exposures to amphiboles, correct? 4 A Thats true. But thats completely unrelated to the Peto

5 model. 6 Q But when he says that the -- each exposure contributes to

7 the cumulative exposure, he doesnt say each exposure only to 8 amphiboles, he talks about each exposure to every type of 9 asbestos, correct? 10 A 11 Q No. Youre mixing apples with oranges. The --

Im not talking about Peto, Im talking about Dr. Hammer

12 in his textbook? 13 A Okay, well, youre just reading from the Peto model and It -- does Dr. Hammar think that Yes, he does. Hes been

14 thats apples with oranges.

15 chrysotile can cause mesothelioma?

16 superceded by the published literature and theres simply not 17 one paper in existence that demonstrates the cause and effect 18 relationship, a doubling of the risk of mesothelioma, in 19 populations exposed to chrysotile only. That does not exist.

20 People may say it, but theres no such data. 21 Q Now, youre familiar with the International Agency for

22 Research on Cancer, correct? 23 A 24 Q I am and Im familiar with this particular document. And its a World Health Organization Medical Group,

25 correct?

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Feingold - Direct/Houff 1 A 2 Q It is.

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And in fact, the World Health Organization relies on the

3 International Agency for Research on Cancer to research cancer, 4 correct? 5 A 6 Q I agree. Yes, it does.

And in fact, they published monographs on a fairly

7 periodic basis where they explore the entire totality of the 8 medical science on a given issue looking at animal 9 experimentations, in vivo studies, in vitro studies, 10 epidemiology, and other aspects of exposure to particular 11 materials, and offer an opinion on whether those materials can 12 cause cancer, correct? 13 A And they generally get most things right. Sometimes they

14 miss on some important points, but generally a valuable 15 resource. 16 Q 17 A 18 Q And in fact, this just came out in 2012, correct? It did, yes. Its a monograph on asbestos, including chrysotile,

19 correct? 20 A 21 Q 22 A 23 Q Correct. It starts on Page 219 and it ends on Page 309, correct? Correct. Thats true.

The last pages beginning on 295 to 309 are all the

24 references for all of the literature that they rely on in 25 creating their opinions, correct?

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Feingold - Direct/Houff 1 A Very important. Thats correct.

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Those papers can be read

2 individually, and when they are read individually not one 3 demonstrates a cause and effect relationship between chrysotile 4 asbestos and mesothelioma. 5 but thats the reality. 6 in the world. 7 Q Well, in these references are the papers from 1997 which And I know thats disappointing,

There is not one such published paper

8 you maintain changed the world and said that its tremolite and 9 not chrysotile that causes mesothelioma, correct? 10 A I didnt maintain that at all. I said that in Quebec the

11 exception proves the rule. 12 medicine and science.

Its a standard approach in The

Exceptions often prove the rule.

13 rule is established by other literature and I did not maintain 14 that 1997 changed the world. 15 actually. 1997 was in the opposite,

Part of a continuum of knowledge that grew,

16 beginning in 1982 particularly. 17 Q In formulating their opinions in this monograph they were

18 viewed, the 1997 studies from Canada, McGill University, Dr. 19 MacDonald, Dr. Liddell, and the rest, and despite reviewing 20 that evidence they concluded all forms of asbestos can cause 21 mesothelioma. There is considerable evidence that the potency

22 for the induction of mesothelioma varies by fiber type, and in 23 particular that chrysotile asbestos is less potent that 24 amphibole forms of asbestos. 25 A Thats their conclusion, correct? And

Not to quibble, but you didnt read it correctly.

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Feingold - Direct/Houff

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1 when you read it correctly it actually means something a little 2 different than you implied. Although, all forms of asbestos

3 can cause mesothelioma -- which you know from my deposition, I 4 agreed, because under special circumstances chrysotile asbestos 5 can be used to induce mesothelioma. 6 Q But you testified in this case that you disagree with

7 IARCs conclusion that chrysotile can cause mesothelioma in 8 humans -9 A 10 Q 11 A I --- thats been your testimony, correct? I disagree. As a practical matter, people in Quebec

12 exposed to chrysotile only or people in South Africa, in the 13 ACA mine, an African chrysotile asbestos mine only, dont get 14 mesothelioma. Thats the fact. Thats the reality and thats

15 whats published.

So if IARC says, we think all forms of

16 asbestos can cause mesothelioma, they are right in a sense 17 because there are special circumstances where chrysotile can be 18 used to induce mesothelioma. 19 are not right. 20 Q And thats not the testimony you gave in your deposition. But as a practical matter, they

21 In your deposition you were asked, so I take it do you disagree 22 with IARCs conclusion that chrysotile asbestos can cause 23 mesothelioma in humans? 24 conclusion. 25 A Your answer was, I disagree with that

I do not think there is a published basis.

And thats --

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Feingold - Direct/Houff 1 Q 2 A That was your testimony, correct? And thats what I just said moments ago.

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The literature

3 does not include, does not demonstrate, does not contain, a 4 single paper -- and Im not quibbling about statistics here. 5 There not one paper that demonstrates a cause and effect 6 relationship as defined by, lets say, a doubling of risk -- or 7 we can use that, you know, kind of definition -- or lets say 8 an increase in risk. 9 it. There is not one paper that demonstrates Reasonable scientists

The literature shows the opposite.

10 must conclude that there is no evidence of a cause and effect 11 relationship between chrysotile alone and mesothelioma. And

12 thats not quibbling and thats not for a lack of searching. 13 That doesnt exist. 14 THE COURT: I need to interrupt because I want to May I ask a question please?

15 make sure I understand a point. 16 17 MR. GEORGE: THE COURT:

Sure, help yourself. Dr. Feingold, Im -- I think Im a bit

18 confused between the distinction -- with the distinction youre 19 making between chrysotile not causing mesothelioma, but yet it 20 can be used to induce mesothelioma. 21 me please? 22 THE WITNESS: The direct injection of chrysotile in Could you explain that to

23 high dose can be used to induce mesothelioma in the peritoneum 24 of rodents. The conclusion is that the similar act could

25 possibly induce mesothelioma in humans, and therefore we should

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Feingold - Direct/Houff 1 not do it as -- in certain therapeutic activities.

110 There may

2 be extreme examples of chrysotile exposure in the third world, 3 which amount to almost the same thing as direct injection of 4 chrysotile into the peritoneum of rodents. Those exceptional

5 circumstances might represent evidence of chrysotile induction 6 of mesothelioma. As a practical matter in North America,

7 whether you go to the extreme of a chrysotile mine or the more 8 regular activity of a chrysotile construction worker, 9 chrysotile does not cause mesothelioma. 10 THE COURT: With respect to the multiple exposures,

11 if someone were exposed to an amphibole and also to a 12 chrysotile, is there some induction component that you 13 recognize with the mixture of those types -14 THE WITNESS: I think thats the single most

15 important question and its not the question that typically 16 gets asked. I think thats the crucial point. And I think

17 that the literature demonstrates conclusively that individuals 18 exposed to the combination of chrysotile and say amosite, which 19 was used commonly in the United States, have no greater risk of 20 developing mesothelioma than those exposed only to amosite. 21 And there are two answers to your questions. 22 them. 23 The other is, it is not scientifically logical to Thats one of

24 conclude that if chrysotile alone simply does not cause 25 mesothelioma when its properly identified and when its

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Feingold - Direct/Houff

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1 properly determined that the exposure was really to chrysotile, 2 and not to a mixture unbeknownst to the researchers. But in

3 individuals where chrysotile is not capable of producing 4 mesothelioma as a practical matter, its not logical to think 5 that adding it to amosite would increase the number of cases 6 unless there was some multiplier effect. 7 multiplier effect. Theres no known The opposite

It has not been demonstrated.

8 has been demonstrated in the published literature. 9 10 THE COURT: MR. GEORGE: Thank you. Sure, Your Honor.

11 BY MR. GEORGE: 12 Q Dr. Feingold, in your deposition you were given the

13 opportunity to review the position statement on asbestos from 14 the Joint Policy Committee of the Societies of Epidemiology 15 that came out in June of this year -- or last year, correct? 16 A 17 Q 18 A 19 Q Thats true. And youve reviewed that document, correct? Correct. Okay. And this document -- and you know from reviewing

20 the document, this document has been endorsed by 83 different 21 individuals and by numerous different societies, correct? 22 A Thats true. I dont think polling represents evidence of But youre right, a wide

23 cause and effect relationships. 24 variety of people signed it. 25 Q

And what these people said was that a rigorous review of

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Feingold - Direct/Houff

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1 the epidemiologic evidence confirms that all types of asbestos 2 fibers are causally implicated in the development of various 3 diseases and premature death? 4 A 5 Q Absolutely correct. That is --

Numerous, well-respected, international, and national

6 scientific organizations through an impartial and rigorous 7 process of deliberation and evaluation have concluded that all 8 forms of asbestos are capable of inducing mesothelioma, lung 9 cancer, asbestosis, and other diseases. These conclusions are

10 based on the full body of evidence, including the epidemiology, 11 toxicology, industrial hygiene, biology, pathology, and other 12 related literature published at the time of the respective 13 evaluations. 14 A Yes. Thats what they wrote, correct?

With one important citation, and if you go back and

15 look at the citation youll see why the statement is simply 16 wrong. The citation is circular. What happens is that people

17 tend to cite themselves, and they do it again and again, and 18 they confront the literature that says the opposite and they 19 say it still causes it. It doesnt matter. We dont care.

20 The citation you saw was number one. 21 board.

Youve taken it off the The IARC publication

But it was the IARC publication.

22 cited to other papers, which included proof that chrysotile 23 asbestos does not cause mesothelioma. So this is like a little

24 circle of people who keep on doing this and keep on saying 25 something which doesnt exist in the published literature.

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Feingold - Direct/Houff 1 See, heres the -- heres how I defy you.

113 I defy you

2 to show me a paper that shows cause and effect relationship. 3 It doesnt exist. And because -- just because something hasnt But weve been

4 been proven yet doesnt mean it doesnt do it.

5 looking at this for 100 years and it cant be demonstrated. 6 Q 7 A 8 Q Well, they went on -They do. -- they didnt just cite IARC. They went on and they say

9 more broadly, evidence from other scientific disciplines also 10 demonstrates that chrysotile alone causes not only lung cancers 11 and asbestosis, but also pleural and peritoneal mesothelioma. 12 All forms of study, electron microscopy, biological 13 assessments, inhalation toxicology, and autopsies, indicate 14 that chrysotile, uncontaminated with amphiboles, causes 15 mesothelioma in both animals and humans. 16 wrote, correct? 17 A Thats what they wrote and its extraordinary how they Thats what that

18 continue to cite proof of the opposite for their contention. 19 It is -- to me, I -- the only possible explanation is that 20 people are looking at the published literature and denying 21 reality, because if you look at these papers, Mancuso -22 Mancuso is proof that chrysotile asbestos doesnt call 23 mesothelioma. MacDonalds is proof that chrysotile doesnt Camure (phonetic) is proof. I mean, its

24 call mesothelioma. 25 extraordinary.

They cite articles that show the opposite.

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Feingold - Direct/Houff 1 Yano. Yano, if you look down 2001 is a gross It is sad, but true, that not one of the

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2 misrepresentation.

3 cases that Yano purports to represent chrysotile induction 4 mesothelioma, number one, shows that theres anything but 5 amphibole in the lung, and number two deals with the reality 6 that in the nearby mines there was huge amounts of amphibole in 7 the asbestos that was used in that Chinese factory. You have a

8 list of papers that prove the opposite, and still they put it 9 in. 10 Q 11 A 12 Q Well, let me just ask you this. I read the papers. I read the papers. You read these papers.

Well, let me just ask you this.

13 You would agree with me, we could spend hours discussing the 50 14 or 60 different studies where the authors conclude that their 15 results show that chrysotile asbestos is capable of causing 16 mesothelioma. We could do that and you would have an

17 explanation for each one of these papers, and yet you have not 18 sent one letter to anyone of these journals and said, you know 19 what, these authors are writing falsehoods. 20 Its totally wrong. 21 that, correct? 22 A First of all, I do not do that kind of work. I dont It doesnt happen. Theyre mistaken.

You have not done

23 write letters to the editor. 24 of my career.

Thats not my particular aspect

Number two, they did not write falsehoods. They wrote what they

25 Thats absolutely unfair improper.

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Feingold - Direct/Houff 1 believed to be true.

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There are numerous articles in the list Where a subsequent study years later

2 where you give examples.

3 demonstrated that, lo and behold, the papers actually were 4 contaminated because the population was actually exposed to 5 amphibole. Thats Mancuso. You see in Mancuso, 1983, he

6 thought that the only thing that people put on locomotive 7 oilers was chrysotile. He was completely wrong. The only

8 thing they put on was amosite. 9 mesothelioma?

Why did those people get

Because they should have, given what we know. They wrote things that were

10 So they did not write falsehoods.

11 superceded by subsequent literature. 12 Q Well, these papers that we could go through, theyre being This is not something

13 published as we speak, 2010, 2011, 2012.

14 that were relying on papers that happened five and ten years 15 ago. 16 A Theres publications that came out last week. Its true, and they consistently for example Sturm from

17 back in the 1990's or Hine, you should have here somewhere, 18 which demonstrate, oh, wait a second, oh it turns out that 19 Sturm is talking about we think its mostly chrysotile and in 20 fact now that we know, now that the iron curtain has fallen and 21 now we know what came out of Russia, we know it was amphibole. 22 Its -- the new papers demonstrate exactly what you said, more 23 and more information and explanations, and the explanations are 24 monotonously consistent. 25 for every one. As you said, I have an explanation I have

I dont have an excuse for every one.

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Feingold - Direct/Houff 1 an explanation. When you present a paper like Mancuso, or

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2 Sturm, or Yano, and you say, look, its just chrysotile thats 3 causing mesothelioma, and yet somebody comes along later and 4 looks at the lung tissue and says, oh, my goodness, these paper 5 -- these cases that you thought were chrysotile only exposed, 6 they have crocidolite in their lungs. 7 again and again. 8 problem. Thats whats been done

So thats the reason that youre having this There is evidence of a And thats not because I

Its actually simple.

9 chrysotile induction of mesothelioma. 10 say it. 11 Q

Its because the published literature says it.

Would you agree with me that there are well-credentialed,

12 well-read experts, who have a different opinion than you that 13 are actually going to come into this court and say, you know, 14 weve heard what Dr. Feingold says but its our opinion -15 A And theyre going to have a big problem when faced with Because its not about people and You think that somebody more

16 the literature, arent they? 17 its not about credentials. 18 famous is more important.

The facts are whats important. This is not a popularity

19 Its not a consensus issue either. 20 contest.

If everybody agrees, if ten people agree, oh, yes,

21 chrysotile can cause mesothelioma because I heard that in 22 medical school. 23 tissue. No, well, you know, lets look at the lung Oops, heres amosite.

Oops, heres crocidolite.

24 Again, again, and again, the facts are important and the facts 25 dont lie. Its not the issue of the individual people --

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Feingold - Direct/Houff 1 Q 2 A 3 Q Now, youve come in the courtroom --- credentialed or not.

117

Youve come in the courtrooms across the United States and

4 youve given the exact same testimony that youve given here 5 today, correct? 6 A Well, it varies to some extent with specifics, but the

7 concept -- conceptually, yes, Ive previously said show me one 8 article that demonstrates the cause and effect relationship. 9 Like, you know, I -- the tobacco industry says, show me one 10 article that demonstrates a cause and effect relationship 11 between cigarette smoking and lung cancer X, Y, or Z, and I 12 dont show them one. 13 Q 14 A 15 Q 16 A 17 Q Would you -Meeting the Bradford Hill criteria. Would you -So Im saying to you, sure, lets see one case. Would you agree with me that despite the fact that youve I show them 25.

18 come in and offered this testimony, there are juries who 19 despite your testimony still conclude that exposure to 20 chrysotile asbestos caused the disease and in fact they award 21 money for that, could you agree with that simple proposition, 22 yes or no? 23 A I think youre right on that simplistic demonstration, but And

24 I dont think that that speaks to the realities involved.

25 I dont think that the collection of people serving on the jury

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Feingold - Direct/Houff 1 who usually get everything right -- usually -- will get 2 everything right 100 percent of the time. In my personal

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3 experience having testified in a wide variety of cases, some 4 150 trials, which most doctors dont do in their lifetime, I 5 think that juries get things correct almost all of the time, 6 but not always. 7 Q So are you not conceding that there is another viewpoint

8 other than yours? 9 A You know, viewpoints are not -- in medicine -- in music In art, love, viewpoints are

10 viewpoints are really important. 11 really important. 12 comprehend. 13 is good.

My children love music that I cannot Their viewpoint

Their viewpoints are important.

My viewpoint is different. This is about facts.

This is not about

14 viewpoints.

Show me cause and effect

15 relationship.

Cigarettes were shown to be the cause of lung It was no longer debatable. By 1953 the

16 cancer in 1950.

17 evidence was overwhelming asbestos is the cause of 18 mesothelioma, but not chrysotile. 19 Q 20 A So youre not conceding -The evidence is overwhelming. I dont concede -- its not

21 a personality issue. 22 Q 23 A 24 Q Im not -Its facts. -- talking about personalities. Im talking about

25 interpretation of the literature.

Is it your position that the

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Feingold - Direct/Houff 1 only interpretation of this literature is the interpretation 2 that you offered today in this courtroom? 3 A No. My position is that the interpretation of the

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4 published literature and of the facts evolves over time. 5 supposed to evolve over time. 6 not static. It is not a fixed thing.

Its Its

And as it has evolved to 2013, knowledge has been

7 acquired -- knowledge has been -- I wanted you to hear, as 8 well. 9 Q Well, I heard as much as I need to hear if youre waiting

10 for me. 11 12 question. THE COURT: Pardon me. Youve asked the witness a

You can have the courtesy of standing there and

13 listening to the answer. 14 15 MR. GEORGE: THE COURT: Im sorry, I -That applies to everyone. Please

16 continue, Dr. Feingold. 17 A Ill try to wrap it up briefly -- real briefly. Knowledge

18 is not static in medicine or in science, nor for that matter 19 art, and as it has evolved the literature does not demonstrate 20 cause and effect relationship, and whether you like it or not 21 thats what you see when you look at the numbers, at the facts. 22 So if you do a physical examination and -- a physical 23 examination of the lung tissue and you find amphibole asbestos 24 in patients who you thought were only exposed to chrysotile, 25 you cant get away with it. Its there. I see it under

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Feingold - Direct/Houff 1 microscope with my eyes. 2 asbestos body. I showed you a case where I saw an

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With my eyes I took a photograph of it.

I know

3 what caused thats patients disease. 4 opinion. 5 Q 6 A 7 know. 8 Q 9 A 10 Q 11 A 12 Q Its factual.

Theres no dispute or

Now, youve look at 2765 PIQs, correct? Yes, sir. Not -- didnt analyze every single one, as you

I sampled. 12 percent -- 12 percent you analyzed -Right. -- it was 337, correct? Yes. And you found that in that small sample 10 percent, almost

13 11 percent of those mesotheliomas had only exposure to joint 14 compounds, correct? 15 A No, thats wrong. Number one, its not a small sample. As it turns out, unnecessarily

16 Its a very large sample. 17 large.

Unnecessarily in a sense of confidence interval and Number two, no, I found 11 percent had

18 confidence coefficient.

19 no other explanation, which is not the same as saying they only 20 had an exposure to joint compound, because a very substantial 21 percentage of people who report having no asbestos exposure 22 whatsoever are found upon examination to have amphibole 23 asbestos in their lungs, and I said that in my slide. I said

24 -- most -- this is Slide Number 37 -- most or all of these 25 25 cases could have been explained by a more complete occupational

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Feingold - Direct/Houff 1 history or an asbestos fiber lung burden. 2 Q Now, let me just ask you -- this will be my final In those instances, if you had a more complete

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3 question.

4 occupational history that didnt include anything but what you 5 had in those POQs (sic) which was direct joint compound 6 exposure, and you had a lung fiber burden that didnt that 7 didnt demonstrate the presence of any amphiboles, in your 8 opinion you would not say that that is a chrysotile induced 9 mesothelioma, you could call it idiopathic, correct? 10 A Well, there would be very few. You know, youd be talking

11 about three percent or less, which is consistent with what we 12 found. We found from in this 336 that about three percent, I

13 rated as non-asbestos mesotheliomas, but they didnt include 14 these 25. These 25, if we would do a more complete examination

15 of the occupational history, you know, go year by year and not 16 miss the six months that the guy worked for his uncles 17 junkyard junking boilers -- which is the patient I had, you 18 know, I remember -- not miss those. We get a complete

19 occupational history and do a lung burden fiber analysis and 20 find there not one asbestos body. Why is that important?

21 Because just finding an asbestos body represents evidence of 22 exposure to amosite or crocidolite. 23 bodies form on amphibole. 98 percent of asbestos

We dont find one asbestos body and

24 we find a level of amphibole uncoded fibers thats below the 25 pathogenic range. If thats the case, out the 25 were talking

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Feingold - Direct/Houff 1 about one maybe. Maybe. Maybe -- wed have to find -- exam And that person, Id say,

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2 200 before wed find such a case.

3 yes, either we dont know or is probably a non-asbestos meso. 4 But if we did lung burden analysis on those 25 wed find 5 amphibole on almost all of them, and I know because Ive been 6 doing this for 30 years. 7 Q And that -- but youre -- am I correct that in the event

8 we did a complete history, didnt find any amphibole exposure, 9 did a fiber burden analysis and didnt find any amphibole 10 fiber, you would still conclude that its not a chrysotile 11 induced mesothelioma? 12 A I would conclude it, but I would be much less certain. Id be unsure. I would say I was unsure. Maybe

13 Id be uncertain.

14 Id say, you know, maybe were missing something here.

15 this is an example of a chrysotile induced mesothelioma even 16 though thats not demonstrated in epidemiology, even though the 17 general causation doesnt support it, Im -- and Im not 18 supposed to as a scientist come to a specific causation 19 conclusion without general causation, Id still be suspicious. 20 So the correct thing for me to do is, look, absent general 21 causation, no cause and effect relationship. And I see a case

22 which makes me wonder if the correct thing to say, look, Im 23 not sure. This is an unusual case, but general causation Hence, the probably But that didnt

24 doesnt support cause and effect.

25 explanation is idiopathic, but I dont know.

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Feingold - Direct/Houff 1 happen in ths case. What would have happened, in my opinion

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2 based on my experience, my analysis of the literature, and my 3 actual conduct of asbestos fiber burden analysis, is that we 4 would have probably found amphibole asbestos in almost all of 5 those cases. 6 Q 7 A 8 Q Now, this was just a sample of -2765. So if we looked at the entire cohort, wed have almost 200

9 people that would have, as you say in your first part there, 10 pleural mesotheliomas and direct joint compound exposure alone 11 as shown by the PIQs? 12 A 13 14 Honor. 15 16 17 18 THE COURT: MR. DORSEY: THE COURT: MR. HOUFF: Are you asking any questions on behalf -No, Your Honor. -- of the future representative or -I have no further questions, Your Honor. Correct, thats what 11 percent means. MR. GEORGE: Thats all I have. Thank you, Your

19 May the witness be excused? 20 21 22 23 THE COURT: Is anybody calling the doctor back again? No, Your Honor. Thank you. Were

UNIDENTIFIED ATTORNEY: THE COURT: MR. EVERT:

Youre excused, Dr. Feingold.

Your Honor, its 10 minutes to 12.

24 glad to start -- we would be recalling Dr. Mullin to the stand. 25 We can start that or we can break for lunch. Whatever the

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124 1 Courts preference is? 2 THE COURT: I think wed be better if we just go

3 until 12:30 and then -4 5 MR. EVERT: THE COURT: Okay. Oh, well, excuse me. Let me double check

6 one thing in my office. 7 8 UNIDENTIFIED ATTORNEY: THE COURT: Sure. I cant Never

I have a conference call. Is it 12:30?

9 remember the time.

Im sorry.

Okay.

10 mind, I dont need to check. 11 12 13 14 Honor. 15 MR. FINCH:

All right. Let me get Dr. Mullin.

UNIDENTIFIED ATTORNEY: THE COURT:

All right, thank you. I think hes outside, Your

UNIDENTIFIED ATTORNEY:

Your Honor, may I be excused?

I dont

16 have any more witnesses today? 17 18 19 20 21 THE COURT: MR. FINCH: Yes, Mr. Finch. Okay. Thank you.

Thank you. Thank you, Nate.

UNIDENTIFIED ATTORNEY:

(Attorney conversations) MR. GORDON: Im not sure where Mr. Evert went, but

22 Im sure hell be right back. 23 24 25 THE COURT: Looking for Dr. Mullin. I could probably guess. Youre suggesting he had an

UNIDENTIFIED ATTORNEY: UNIDENTIFIED ATTORNEY:

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125 1 ulterior motive to why he thought a break was good? 2 THE COURT: Well, if we need a recess, yes, age does

3 factor into this. 4 5 6 7 8 (Laughter) UNIDENTIFIED SPEAKER: MR. EVERT: THE COURT: Hes back.

Sorry, Judge. Thats all right. I think the judge just dissed

UNIDENTIFIED ATTORNEY:

9 you on your age. 10 THE COURT: No, actually it was a personal commend.

11 Dr. Mullin, Ill remind you that youre still under oath. 12 13 THE WITNESS: MR. EVERT: I understand.

Judge, I am loathed to admit that if I

14 was dissed, it is not the first time Ive been dissed in a 15 courtroom. 16 17 That is for sure. THE COURT: MR. EVERT: Yes. To make things easier, as Mr. Houff did Your Honor, if I may approach?

18 this morning, Ill give a whole package of the debtors 19 demonstrative exhibits. 20 21 THE COURT: They go from Demonstrative 23 to 55.

All right. Youre going to have to put

UNIDENTIFIED SPEAKER:

22 that on the record again. 23 24 MR. EVERT: THE COURT: Im sorry. Thank you. No, Im sorry. Im sorry. Can you folks

25 mute your microphone over there, please.

Im hearing your

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Mullin - Contd Direct/Evert 1 conversation and not -- I dont think thats intended. 2 ones on. 3 4 UNIDENTIFIED SPEAKER: THE COURT: No, these are both on. Its just that That

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Theyre always green.

5 they get lighter green when theyre on so. 6 7 8 UNIDENTIFIED SPEAKER: UNIDENTIFIED SPEAKER: UNIDENTIFIED SPEAKER: Im sorry. Thank you, Your Honor. Thank you. That might have

9 been us, too, Your Honor. 10 MR. EVERT:

I apologize. For the record, I guess weve

Your Honor, Im sorry.

11 those are Demonstrative Exhibits 23 through 55. 12 been labeling them D-23 through D-55. 13 14 15 16 17 BY MR. EVERT: 18 Q THE COURT: MR. EVERT: All right. Thank you, Your Honor.

CHARLES MULLIN, DEBTORS WITNESS, PREVIOUSLY SWORN CONTINUED DIRECT EXAMINATION

Dr. Mullin, I didnt hear if the Court told you, you know

19 youre still under oath? 20 A 21 Q Correct. Now, yesterday, we stopped during a discussion of this

22 demonstrative exhibit, which -- can we get it switched to where 23 its -24 25 UNIDENTIFIED SPEAKER: MR. EVERT: Thank you. Sure.

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Mullin - Contd Direct/Evert 1 2 here. 3 4 5 6 7 Q THE COURT: MR. EVERT: The lights not on, is it? Sorry. There you go. MR. EVERT: The -- I can see it here on the screen

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UNIDENTIFIED SPEAKER: MR. EVERT: Okay.

This was Debtors Demonstrative D-15, Dr. Mullin, do you

8 recall that? 9 A 10 Q I do. And if you will, pick us back up where we were yesterday,

11 this is entitled the resolution of individually evaluated 12 claims, and tell me what this graph illustrated for you? 13 A Well, I had divided the debtors historical resolutions One was these kind of inventory or docket

14 into two categories.

15 deals that were done with three law firms and the rest was 16 everything else, where there was really discovery taken and 17 more of an individual evaluation. And this demonstrative was

18 restricted to just those claims that are outside of the 17 19 large docket deals that I had documentation for. And what this

20 really showed me was that when you looked at the individually 21 evaluated claims, there was really a lot of underlying 22 stability in that the number of compensable claims, or the ones 23 that were receiving payment, from over the last four years, 24 2007 -- fiscal year 2007 through 2010 -- had really been quite 25 stable. We really see the three essentially flat lines across

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Mullin - Contd Direct/Evert 1 the bottom of the graph. And whats been changing was the

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2 number of dismissals was growing. 3 Q And again, to reorient us, Dr. Mullin, and I know we

4 talked we talked about this yesterday so Im just trying to 5 pick up where we were. This is the actual settlements of the

6 historical claims, correct? 7 A 8 Q Correct. And this is all of the historical claims, with the

9 exception of those with the three law firms subject to the 17 10 large-scale aggregate settlements, is that right? 11 A 12 Q Correct. And these -- the high-value, mid-value, and low-value

13 graphs represent the actual numbers paid by the defendants -- I 14 mean, by the defendants in the tort system, the debtors in the 15 tort system, that we talked about yesterday? 16 A There -- so almost. Theyre not actually the payments.

17 Theyre the committed settlements. 18 Q 19 A 20 Q I see. And theyre dated by when the settlement was committed. And you told us yesterday why you used that rather than

21 the paid data? 22 A 23 Q Correct. Okay. Now, if I could ask you, Dr. Mullin, to turn to

24 Debtors Demonstrative D-23, cause I want to try to put into 25 context, if I could, the individual claims versus the

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Mullin - Contd Direct/Evert 1 settlements with the three law firms. 2 depict? 3 A

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So what does this graph

This graph is showing, again by fiscal year, of the claims

4 that were filed, how many distinct law firms were representing 5 those claimants. So its showing that the number of distinct

6 law firms representing claim -- claimants who filed claims 7 against the debtors has increased to about 50 law firms in 2003 8 to in the neighborhood of 100 law firms in its more recent 9 history. 10 Q So in -- in 2010 and fiscal 2010 -- and of course as we

11 discussed yesterday, were using fiscal years for the reasons 12 that you described yesterday -- there were roughly 100 13 different law firms suing the debtors? 14 A 15 Q Correct. And when you looked at the individually evaluated claims

16 -- Im going to use the round number of 100 -- you were looking 17 at the claims of 97 law firms? 18 A Correct, all but the three law firms that had the 17

19 docket deals. 20 Q I understand. And now when you -- and when you went back

21 in time to the earlier years you were looking at all the law 22 firms, because those 17 settlements that we discussed, they 23 came in the later years, is that right? 24 A Correct. Most of those are in the 2007 to 2010 time

25 period.

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Mullin - Contd Direct/Evert 1 Q

130

Now, when we look at the dollars, which would be -- were Sorry.

2 skipping one actually -- no, were not skipping one. 3 Wrong one. 4 MR. SHEPPARD:

Actually, Your Honor, can I ask for a

5 personal indulgence?

The set I have here has the bottom cut Can I just --

6 off and I know I have the right set. 7 8 THE COURT: MR. EVERT: Yes. Im sorry.

I thought I had handed that

9 to you and I apologize that I didnt. 10 Q So, Dr. Mullin, the last demonstrative had to do with the

11 number of law firms, this has to do with the dollars, is that 12 right? 13 A 14 Q 15 A Correct. So tell me what this represents? So this is -- the previously slide was showing that three

16 law firms is a small number of all the plaintiff law firms 17 involved. But between 2003 and 2010 the -- in terms of

18 committed settlements, the same 17 large deals accounted for 19 about a third of the money. So its $125 million, was the

20 total settlement commitments across those 17 deals out of a 21 total of almost $400 million of settlement commitments over 22 that period of time. 23 Q So roughly two-thirds of the claims that you looked at in

24 the historical claims database fell into the category that you 25 treated as individually litigated claims, is that right?

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Mullin - Contd Direct/Evert 1 A

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Its actually a little more than two-thirds of the claims.

2 Its two-thirds of the dollars, but a little more than 3 two-thirds of the claims. 4 Q Okay. Well, good point. Lets look at the claim. So

5 two-thirds of the dollars, but maybe a different number with 6 the claim. So if you look at Demonstrative 25 please, and that

7 goes to your point, if youd explain that? 8 A So this is showing as a percent of all the resolved claims

9 in each fiscal year, how many were involved in these 17 large 10 settlements? So two points really to take from this, which is

11 prior to 2006 it was a small percentage of the claims, so from 12 2003 through 2006 most claims were individually evaluated. 13 When you go forward to 2007 to 2010 theres really the 14 prevalence of these documented large settlements are, you know, 15 much higher, and youre getting number in the 35 to 50 percent 16 of resolved claims are in that group. 17 Q So based on the last slide it was roughly one-third of

18 dollars -19 A 20 Q 21 A 22 Q Correct. -- is that right? Correct. And then based on the information that youre

23 demonstrating here, in the last few years it ranged anywhere 24 from somewhere below 40 percent of the claims to somewhere in 25 the 45 percent range of the claims, is that right?

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Mullin - Contd Direct/Evert 1 A 2 Q It -- right around 35 to 50 percent. All right.

132

So at this point, Dr. Mullin, what did you do

3 with that information? 4 A Well, I wanted to get a picture of what was the value of

5 all of these claims if theyd all been individually evaluated. 6 We -- the large deals were really done sight unseen, so there 7 wasnt underlying discovery. There wasnt the same processes But these were large

8 in the individually evaluated claims. 9 populations of claims.

It was the entire docket in general of So

10 these 17 -- in these 17 deals for these three law firms. 11 theres really no reason to believe that they have

12 disproportionately more valuable claims than all the other law 13 firms or disproportionately less. So if you view these as a

14 large population of claims in the last few years, 35 to 50 15 percent, that if individually evaluated would have been 16 evaluated similarly to the claims that actually were 17 individually evaluated, and thats the next step that I did. 18 So I applied the experience of the individually evaluated 19 claims to these 17 group deals. 20 Q So let me make sure Im following. So the two-thirds of

21 the claims that -- Im sorry.

The two-thirds of the payments

22 that were individually evaluated, which comprised roughly in 23 the later years 35 to 45ish percent of the claims, you then 24 tried to assume that those claims had all been individually 25 evaluated, am I getting that right?

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Mullin - Contd Direct/Evert 1 A I wanted to see, how would they have been evaluated?

133 So

2 similar to evaluating a pending claim for which you dont 3 observe the value of the individual claim yet. For the group

4 result claims, these ones in these large deals, you really 5 didnt observed an arms length negotiated evaluation of each 6 claim. So I wanted to -- just like youd normal see people

7 value pending claims, I wanted to say, how would those have 8 been valued based on the experience of the claims that actually 9 went through the discovery process? 10 Q So the claims reflected in the database for the individual

11 claimants involved in those claims, youre saying they were not 12 arms length negotiated? 13 A 14 Q 15 A The settlement was arms length negotiated -The aggregate settlement? -- the aggregate settlement. But the value of each claim

16 was not.

So the parties negotiated, and we saw the of these

17 yesterday, where the parties would negotiate at arms length 18 that the entire group would be paid $22 million. They didnt

19 negotiate what each individual claimant would receive. 20 Q And so this was an effort to try to take your analysis

21 down to an individual claimant analysis so that you could 22 arrive at an aggregate estimate? 23 A 24 Correct. THE COURT: Excuse me. Doesnt one of the exhibits

25 show that the settlements attached, the names of each person

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Mullin - Contd Direct/Evert 1 and what the firm attributed to their payment? 2 3 THE WITNESS: THE COURT: Correct. But you were not using that

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Okay.

4 information? 5 THE WITNESS: No, I -- that information, my

6 understanding of it was, was entirely decided upon by the 7 plaintiff law firm. The defendants had no say in how the money

8 got allocated to individual claims. 9 10 Q THE COURT: Well -- okay.

So just to followup, Dr. Mullin, in these -- these 17

11 settlements that were -- were talking about 17 settlements, 12 right, with three law firms? 13 A 14 Q Correct. And it was your understanding from the documentation that

15 the only thing negotiated between the parties was the aggregate 16 total amount for all of the claims on the list? 17 A 18 Q Correct. And therefore when you looked at the database with an

19 individual dollar amount next to an individual claimant, that 20 number had not been individually negotiated? 21 A 22 Q Correct. So you wanted to then try to look at if it had been, like

23 the two-thirds of the claims that were individually negotiated, 24 how would that look? 25 A Correct. I mean, when I looked at these 17 deals you

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Mullin - Contd Direct/Evert 1 could tell on their face, if you look at the distribution of 2 how the money is distributed, its very different than the

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3 distribution of how the money gets distributed when individual 4 evaluation happens. 5 A 6 Q I mean, so well --

Give an example of that? The easiest example is that when theyre individually

7 evaluated, 70 to 75 percent of the claims get dismissed, and of 8 the claims that get paid the average amount is in the 9 neighborhood of $170,000 per claim. In contrast, when you look

10 at these large deals, 90 percent of the claims are assigned 11 value, instead of 25 to 30. So you have three times as many So youre

12 claims getting paid at a much lower average value. 13 seeing a very different distribution.

The money is being And

14 spread much more evenly over a very large group of claims.

15 I wanted to get back to how many high-value claims are there, 16 how many mid-value, how many low-value, how many dismissals, if 17 you want to take into account the merits of the individual 18 claims? 19 Q So if you would, Dr. Mullin, look at Debtors

20 Demonstrative D-26 and tell me what that -- its very similar 21 to one that we looked at just a moment ago -- tell me what that 22 represents? 23 A Thats the output of the process that I just discussed.

24 So when I go through and I look at the claims, these 17 large 25 deals, and I apply to them the experience of the individually

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Mullin - Contd Direct/Evert 1 evaluated claims I can determine that there would be more

136

2 high-value claims, there would be more mid-value claims, more 3 low-value claims, and more dismissals. And its just really

4 recasting that money as though they had been individually 5 evaluated to get a picture. So if you were to contrast this

6 with the previous demonstrative youd see that all the lines 7 for 2007 through 2010 are higher because its accounting for, 8 if these group deals had been individually evaluated where 9 would the money have fallen? 10 Q Right. Dr. Mullin, I just want to make sure -- its an

11 important point. 12 13 14 15 MR. EVERT: (Indiscernible). Of course.

UNIDENTIFIED SPEAKER: MR. EVERT: THE COURT:

I just want to make sure Im getting it. Well, Dr. Mullin, did you then go back by

16 any chance and look at these individual settlements and 17 determine whether in, for example just to pick a category, your 18 high-value claims, that the number that you came up with 19 compares to the numbers on these charts and there are claims 20 that I would use the euphemism nuisance value settlements in 21 here where people were paid a $1,000, are those the claims that 22 you would have thought would have been dismissed? 23 THE WITNESS: I didnt try to look at an individual But

24 claim and say that individual claim would be dismissed.

25 Ive redistributed them statistically according to what I

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Mullin - Contd Direct/Evert 1 observed, so were 90 percent were being paid in the large 2 deals. I am saying more like 30 percent would be paid. So

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3 that says that 60 percent of the claims that were paid are 4 being moved to dismissals, but the other 30 percent are being 5 assigned much higher values than I observed, so Im applying 6 the observed patterns of how the money gets spread across 7 claimants in the individually evaluated ones to these group 8 deals, because the group deals are giving me a very different 9 distribution. So in effect, yes, but not on a claim by claim

10 basis, on a statistical basis for the entire group of claims. 11 THE COURT: So theres nothing that compares, for

12 example, your analysis that is reflected on Exhibit D-26, 13 Demonstrative D-26, with for example what is in Debtors 14 Exhibit 21? I dont know if you have that. It is the group of

15 three settlements that were offered for illustrative purposes, 16 and that attach the schedules of payments that were made 17 pursuant to the gross value that was paid by the debtor. There

18 is nothing that compares, for example, your number of dismissed 19 claims to anything on this chart or your number of high-value 20 of claims to the number of payments over $200,000 on these 21 exhibits. 22 THE WITNESS: There would -- I mean, I havent done

23 that explicitly.

If I were to do it, it would be in -- it It would say that if theres 250

24 wouldnt be claim by claim.

25 claims on one of these lists --

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Mullin - Contd Direct/Evert 1 2 THE COURT: Yes?

138

THE WITNESS:

-- what I would tell you is, I would go

3 in and say of those 250 claims youre going to see a certain 4 percentage of them would have been high-value. 5 you which ones -6 7 THE COURT: Yes. -- because I see the historical records But I cant tell

THE WITNESS:

8 have no characteristics of the claims that I can observe. 9 I would be able to go through each of those.

I did it for all

10 of them holistically, as opposed to each individual deal. 11 12 THE COURT: Yes. But I could tell you that about 70

THE WITNESS:

13 percent of those would have -- of the 90 percent thats paid, 14 60 percent would have been dismissed. Most likely youre

15 correct that it would have been the ones that got $1,000 or 16 $5,000. An additional 30 percent would have been paid and that

17 would have broken down as approximately as five to ten percent 18 is high-value. The larger group is mid-value. And again, a

19 smaller group is low-value.

Im about to get to some explicit

20 counts of how that breaks down distributionally, but I can do 21 it that way for you as opposed to claim by claim. 22 23 sorry. 24 25 time. THE COURT: Im sorry. This wont count against your I need MR. EVERT: Your Honor, let me see if this -- oh, Im

Can you stop the time clock for a minute please.

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Mullin - Contd Direct/Evert 1 to -2 3 4 5 6 NFL. 7 8 9 Honor. 10 11 12 UNIDENTIFIED SPEAKER: UNIDENTIFIED SPEAKER: UNIDENTIFIED SPEAKER: You can just count to -It might take a while. UNIDENTIFIED SPEAKER: THE COURT: MR. EVERT: THE COURT: Okay.

139

-- take a look at the exhibit. Thank you, Your Honor. I always wanted to be a referee in the

I can say put 30 seconds back on the time clock. (Laughter) UNIDENTIFIED SPEAKER: Im happy to do that, Your

-- count to 30 before you hit

13 start again. 14 15 clock. 16 Q 17 help. THE COURT: Okay, count to 30 and then start the time

All right, thank you, Mr. Evert. Im actually -- Im going to try to

Yes, Your Honor.

Ill try to be helpful, which maybe it will make up for Dr. Mullin, Im going to skip ahead to

18 my dis of earlier.

19 Debtors Demonstrative 28 and I want to focus on the top half 20 of this chart for a minute to try to see if we can be 21 responsive to the Courts question. 22 top half of this chart represents? 23 A Its their straight tabulations from the historical Tell me what sort of the

24 settlement data from the debtors database, and its telling 25 you that when claims are individually evaluated -- you know, 27

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Mullin - Contd Direct/Evert

140

1 percent, I think its a quarter or a third -- 27 percent of the 2 claims get paid. The remainder get dismissed. In contrast, in

3 these large inventory deals you see 90 percent of the claims 4 involved in the deals receive compensation and only ten percent 5 get dismissed. So its a very different distribution. And at

6 the same time, while its a much smaller group thats getting 7 paid, its 27 percent of the claims that are individually 8 evaluated. The average payment is $170,000. So the payment

9 amount on average isnt that much lower per claim, but its 10 much more concentrated on a small group of claimants when the 11 individual evaluation occurs. While in the groups, the average So

12 payment per claim is about 70,000 instead of 170,000.

13 youre seeing a much larger group get paid when theres an 14 inventory deal at lower levels per claim. So its not mapping

15 into this same high, mid, and low-value structure of the 16 individuals. Its a -- when the plaintiff law firm is allowed

17 to distribute the money at their own discretion, you know, when 18 its the only the total amount thats been negotiated, they 19 distribute that money very differently than what would have 20 been observed if theyd been individually evaluated. 21 Q Now, from other work that youve done, did that

22 distribution surprise you, that the plaintiffs would distribute 23 the money more evenly when it was left in their discretion? 24 A No, that doesnt surprise me at all. I mean, some

25 defendants actually track both sets.

I mean, theres a number

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Mullin - Contd Direct/Evert

141

1 of defendants data where youll see on an inventory deal how 2 the defendant came to the values, and so they have their values 3 in, and then they see how the plaintiff distributed it at the 4 end, and those never line up. 5 Q 6 A 7 Q 8 it. Was that in the debtors data? No. Okay. So let me make sure I get this and that we all get

The individual column on this exhibit represents roughly

9 97 of the 100 law firms that the debtors were litigating 10 against, is that right? 11 A 12 Q Correct. And it represents roughly two-thirds of the money that the

13 debtors committed in settlement? 14 A 15 Q Over the last eight years. And it represents 55 to 65 percent of the claims over the

16 last three or four years? 17 A 18 Q Correct. All right. Whereas the right-hand column represents three

19 law firms, right? 20 A 21 Q Correct. And its -- I think its for 17 settlements that were like

22 the examples that the judge just referred you to? 23 A 24 Q Correct. And in those -- in the disparity in payment rate is I mean, the -- in the individual claims

25 literally topsy-turvy?

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Mullin - Contd Direct/Evert 1 only 27 percent of the claimants get paid and in the 17 2 settlements 90 percent get paid, is that -3 A 4 Q 5 Correct. -- the -- okay. MR. EVERT: Judge, I dont know if that helps give

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6 you a sense of -7 8 THE COURT: MR. EVERT: Oh, I -- yes, I understood it before. Oops. All right, well, there you go.

9 But take me back to the dis category. 10 Q So in Debtors 26 you had then looked at all the claims,

11 100 percent of the claims, and statistically analyzed them as 12 if they were individually evaluated, is that right? 13 A Correct. For the ones that were individually evaluated

14 its literally the settlement values that its the claimants 15 database. For the ones in the 17 group deals they had that

16 settlement pattern statistically applied to them. 17 Q And so rather than -- as the Court asked, rather than

18 taking $1,000 claims or $2,000 claims on the list of these $70 19 -- 17 settlements and treating them as a $2,000 claim or a 20 $200,000 claim, you have statistically compared those to the 21 individually evaluated claims, is that right? 22 A 23 Q Correct. All right. And it leaves you with this estimate as to how

24 the entire claims -- the entire claiming -- historical claiming 25 pattern would look if all the claims had been individually

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Mullin - Contd Direct/Evert 1 litigated? 2 A Correct.

143

And its really not fundamentally very different

3 from the first one that just looked at the individually 4 evaluated. All the numbers are a little higher, but it tells

5 the same qualitative story as we saw when we looked at the 6 individually evaluated ones exclusively. 7 Q All right, so if we look at Debtors Demonstrative D-27,

8 does that then in a chart give you what was on the previous 9 graph, except it also adds in dollars? 10 A Correct. So the previous chart we saw lines. Its hard So

11 to eyeball exactly what lines those numbers correspond to. 12 the kind of black line at the bottom of that chart that

13 represented the high-value claims over the last four years has 14 been averaging 55 high-value claims a year. Similarly, the

15 mid-value claims has been averaging 135 of those and theyve 16 averaging 85 of these low-value claims. So I had a stable

17 history of about 275 claims that if individually evaluated 18 would have received compensation. You know, and 55 of those So those 55

19 are really what are driving the expenditure.

20 high-value claims also have been receiving almost a half 21 million dollars each in compensation. So these are claims that

22 all received over 200,000, but the average payment has been 23 just short of half a million dollars, and so thats more than 24 25 million. Its more than half of the settlement commitments

25 are being driven by this small group of 55 claims out of the

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1 little bit more than a 1,000 claims that are filed each year. 2 Q And so we discussed yesterday the stability that you had This

3 found in the debtors data over the last few years.

4 represents what you believe would have been the average over 5 the last two or three years? 6 A Really the last four. So this is really taking 2007, You know, and it also -- it ties

7 fiscal years 2007 to 2010. 8 all the pieces together.

So whats really -- if individually Weve seen a stable -Thats really That

9 evaluated, the worlds been stable.

10 relatively stable total settlement commitments. 11 where we started.

We saw a rising propensity to sue.

12 rising propensity to sue really is just translating to more 13 dismissals. Thats why its not causing the values to go up.

14 We also saw a declining average settlement value per claim. 15 The declining average settlement value was caused by the advent 16 of these large inventory deals where many more claims were 17 viewed as compensable, but they got a lot less money. And

18 since you put more claims in with a similar amount of money it 19 drove down the average settlement value. 20 really anomalies. But these were both

You know, they arent really driving value So if youre looking at the last four

21 at the end of the day.

22 years, theres really been a very stable group of about 275 23 claims which are really creating the litigation risk and the 24 valuation. 25 Q All right. Now, in the -- let me just make sure I

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Mullin - Contd Direct/Evert 1 understand. 2 in the PIQs?

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Did you look at the individual product allegations You talked about yesterday what youd looked at

3 the -- Im sorry, in the historical claim database in the 4 sample that you did? 5 A I did look at that. Not -- I mean, thats not going

6 directly into this analysis yet, because this really just 7 looking at what claimants were being paid, what the actual 8 settlement commitments were in the debtors claims database. 9 Q 10 A 11 Q Right. Mm-mm. -- said PIQs, but this is the historical data were still And so this is historical? I mistakenly --

12 looking at at this point in time, is that right? 13 A 14 Q Correct. All right. And this -- and when you looked at the

15 historical debtor -- the historical product allegations in the 16 debtors claim history, what products were driving or what 17 product was driving the claiming pattern? 18 A 19 Q Joint compound products. All right. Now, we heard -- weve heard about products,

20 brand labeled products here, were those a significant part of 21 the historical claims that you saw in the database? 22 A 23 Q 24 A By brand labeled, you mean private labeled? Yes. Okay. No, in the historical database about one percent of

25 the historical payments are to claimants alleging exposure to a

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Mullin - Contd Direct/Evert 1 private label. 2 Q

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And was that consistent -- and I will get to the PIQs in a

3 minute -- was that consistent with your finding in regard to 4 the PIQs? 5 A Correct. Its also about one percent of the PIQs alleged

6 exposure to a private label product. 7 Q Okay. So all of the alleged exposures of the claimants

8 brought in the historical claims were taken into account in 9 your analysis? 10 A Correct. I mean, this is looking at everything thats

11 contained in that historical experience. 12 Q Okay. And this indicates then that you would look at an

13 average expenditure from an indemnity basis for the last three 14 or four years, I think you said, of roughly $45 million, is 15 what this demonstrative indicates, is that right? 16 A If all the claims were evaluated on their own merits, so

17 if we went through the process of an individual evaluation, you 18 know, so Im abstracting from these large inventory deals, 19 youd be at approximately 45 million per year. 20 Q I think you testified yesterday that the debtors average

21 expenditures over the last three or four years was roughly 55 22 million a year, is that right? 23 A The last four years its been closer -- I think just under

24 55 million a year. 25 Q Okay. So I guess the obvious question is, if they could

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1 have spent 45 million instead of 55 million, why did they spend 2 55 million? 3 Thats really a pretty simple answer. These group deals

4 -- these large group deals, they pay more per claim, but they 5 pay a lot less to their defense attorneys. So we heard Mr.

6 Tompkins the other day talking about -- saying largely the same 7 things Im going to say here -- but I can quantify it off the 8 debtors data. So weve already talked about the beginning

9 part of this chart, but the average resolution cost, so the 10 average payment per resolved claim is about $45,000 under an 11 individual review. That same cost is about $63,000 per So theyre But

12 resolved claim in these large inventory deals.

13 actually paying almost $20,000 more per resolved claim.

14 that makes really economic sense when you go and you take into 15 account the defense costs. So to evaluate the claim when we

16 look at the defense expenditures, so I have a period of time 17 with the debtors data where I -- where those defense 18 expenditures are tracked on a claim by claim basis, so I can go 19 look and it tell me to individually evaluate claims on average 20 costs $45,000 in defense fees. It only costs about $5,000 per

21 claim in defense attorneys fees to negotiate these large 22 settlements. 23 So if you look at the all-in costs from the debtors

24 perspective, theyre paying on the individually evaluated 25 claims 45,000 per claim to the claimants on average and 45,000

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Mullin - Contd Direct/Evert 1 per claim to their counsel. That also includes experts or

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2 other things that may be there, but they have 45,000 of 3 transaction costs. So its costing them $90,000 per resolved

4 claim when they individually evaluate. 5 In contrast, when they do the large deals theyre

6 paying 63,000 to each claimant on average, but theyre only 7 paying 5,000 in transaction costs, so there all-in cost is 8 $68,000. So theyre actually saving almost -- you know, And this actually follows Theres about a $40,000

9 approximately 20,000 per claim.

10 exactly what economics would predict. 11 savings in defense costs. 12 to 5,000 per claim. 13 this.

Youre going from 45,000 per claim

Both parties at the negotiating table know

If you do it pre discovery, both sides know that theres And most economic theory predicts If you

14 this big savings in costs.

15 that that savings gets split between the two sides.

16 assume they have about equal bargaining power in that 17 discussion they should split it 50-50. Well, a $40,000 savings

18 in defense costs means each side should save about -- should 19 pick up $20,000. The claimants getting about 20,000 more. So that savings in The

20 debtors are paying about 20,000 less.

21 defense costs is just being split up in the negotiation between 22 the two parties. 23 Q 24 A Roughly, a 50-50 split? Right. Its a little bit more. I mean, its 22,000

25 18,000, but approximately 50-50.

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Mullin - Contd Direct/Evert 1 Q All right.

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Now, in your analysis of the historical cases

2 did you include the verdict cases as individually evaluated 3 claims or individually litigated claims? 4 A I did. Im sorry.

I referred everything as a settlement commitment.

5 It gets burdensome to carry around settlements and/or verdicts. 6 So when I say settlements, throughout Im going to also be 7 referring to -- I intend to include in that verdicts. 8 Q Verdicts were -- the verdict cases were a part of your

9 sample? 10 A Correct. So they were considered an individually

11 evaluated claim. 12 Q Okay. And if you would look at Debtors Demonstrative

13 D-29 and tell me what you found and what that illustrates in 14 terms of your findings in regard to the verdict cases? 15 A Well, we had, you know, in round numbers, 30 verdicts.

16 Through those verdicts we know that for a number of them we 17 were able to observe -- its in the more recent years -- but 18 for a number of them I could observe what the actual litigation 19 costs were. So -- which are approximately $300,000 per claim

20 was what it cost the defendant to carry a case through verdict. 21 The average amount paid on those cases was about $250,000 per 22 claim. But thats -- thats an average. And weve talked

23 before that around two-thirds of them were dismissals, you 24 know, were defense verdicts, so one-third of the claimants -25 so if theyre the claimants that got paid, they were getting

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1 paid more like three-quarters of a million dollars, and thats 2 post, offsets, credits, anything else that may apply. 3 the actual amount that was owed at the end. Thats

And for a large

4 number of them, we can see what the final settlement offer of 5 the debtors was, and that was on average $335,000. 6 Q So that indicated to you that if the cases had been

7 settled on average they would have fallen into the high-value 8 category, is that right? 9 A Almost all of the cases that went to trial, the last So if the claimant had

10 settlement offer, exceeded $200,000.

11 accepted the settlement offer they would have been a 12 high-valued case. 13 Q Now, is there any import to the fact that the defense

14 costs exceed the average payment made by the debtors in the 15 verdict cases? 16 A Its very informative in terms of what are the economic

17 pressures that were on the defendants, so when the defendants 18 receive a case, to try the case through verdict is around 19 $300,000. Their potential defense bills are actually larger So from when theyre managing

20 then their potential liability.

21 this litigation you can see that the defense, its not kind of 22 a second order expenditure, its actually on the same order of 23 magnitude and slightly larger than the actual liability. 24 they didnt settle, it really says its going to cost 25 prohibitive for them to try every case. And at 300,000 a case So if

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Mullin - Contd Direct/Evert 1 we can see that theyre currently settling cases at 90,000 2 after individual review.

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Theyre spending about 68 $70,000 per Its going to cost him

3 claim when they do a group inventory.

4 300,000 a defense, plus verdicts if they were to do it the 5 other way, so its clearly more expensive to try all the cases. 6 Q All right, now, weve talked in your entire testimony at

7 this point, Dr. Mullin, I think -- except with a couple of 8 exceptions -- about your review of the historical claims 9 database and the -- and your sample and the information that 10 you got about the historical claims, is that right? 11 A 12 Q Yes. And at this point, basically, in your review after having

13 done all the things that we described, did you feel like you 14 had a handle on the debtors history? 15 A 16 Q 17 Yes. And so what did you do next? THE COURT: Well, why dont we stop there since its

18 lunch time and well pick up with what happened next after 19 lunch. 20 21 22 on. Well be in recess until 1:30. MR. EVERT: Thank you, Your Honor. Operator, I dont know who is

UNIDENTIFIED SPEAKER:

Im just going to disconnect and Ill call back at 1:30.

23 Thank you. 24 25 THE COURT: (Recess) Dr. Mullins, you ready?

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Mullin - Contd Direct/Evert 1 2 3 THE WITNESS: THE COURT: MR. EVERT: Yes.

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Whenever youre ready, Mr. Evert. Good afternoon, Your Honor. Thank you.

4 BY MR. EVERT: 5 Q So Dr. Mullin, when we left off before lunch I think I had

6 asked you what everything weve talked about thus far in your 7 testimony has to do with your analysis of the historical claims 8 and the information you sampled in regards to those claims, is 9 that right? 10 A 11 Q Correct. And did you feel at this point that you had a handle on

12 the debtors claims history? 13 A 14 Q 15 A Yes, I did. So what was the next step at this point? The next step, I moved on to the evaluation of the pending

16 claims where I had the benefit of the PIQ responses that 17 allowed me to compare those to that historical experience. 18 Q And what is the importance of comparing the PIQ data to

19 the historical claims data? 20 A Its not always the case that the inventory of pending

21 claims has the same characteristics as the historically 22 resolved claims. 23 differ. Frequently it is, but sometimes they can

And here theres many similarities as well, and

24 theres some notable differences that one needs to take into 25 account, but you got to do that comparison to be able to

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1 property value the pendings from the information you have about 2 the historical. 3 Q And did you perform that analysis to ascertain if there

4 were similarities between the historical claims and the pending 5 claims? 6 A I did. I spoke yesterday a bit about how when we captured

7 the information from the sample of about 1,000 historical 8 claims, my staff captured that in the same format as the 9 information for the PIQ responses, so that allowed me to 10 directly compare things like the amount of alleged exposure to 11 the debtors products, the amount of alternative exposure 12 sources that the parties may have, the numbers of defendants 13 they name. You could look at different characteristics and see

14 on which characteristics do they look similar and on which 15 characteristics do they look different. 16 Q And did you perform that analysis for -- as we were

17 talking about before -- the individually litigated claims? 18 A Well, the comparison to the PIQ responses really is Those are

19 constrained to the individually evaluated claims.

20 the only claims where discovery was taken, so theyre the only 21 claims where that historical record of the exposure profile, 22 number of other defendants, all this information exists. 23 information just doesnt exist in the debtors historical 24 records for the 17 large deals. 25 Q So the 17 settlements with the Simmons, Cooney, and Lanier That

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Mullin - Contd Direct/Evert 1 firms, what kind of information did you have available about 2 those claims? 3 A Typically, there is a complaint.

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There may be a release

4 or some form of affidavit and a documentation like the 5 documents that have been looked at previously of the entire 6 group settlement of what it was -- how much money was involved, 7 what was the date of it? 8 Q And is that contrasted from the information for the

9 individually litigated claims? 10 A With the individually litigated claims you, not always but

11 frequently, have answers to interrogatories, deposition 12 transcripts, you know, lots of discovery type information about 13 the claimants. 14 Q And did you typically look at that information in summary

15 fashion in regard to the -- whether it was in a pretrial report 16 or things of that nature in regard to the -17 A It varied depending on what was available. I mean, when

18 pre-trial reports were available that was a much more 19 economically efficient way to gather the information than have 20 my staff repeat all that work. But in general, we took

21 advantage of the totality of the information that was available 22 to us. 23 Q So what was your -- then -- now that youve taken the PIQs

24 and compared them and seen that they look similar to your 25 information about the individually litigated historical claims,

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Mullin - Contd Direct/Evert 1 what was your -- what was your next step? 2 A Well, they look similar, with really the absence of one

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3 very important characteristic in that when you look at the 4 historical claims it was -- its very rare that a claim thats 5 been in the tort system for five or more years ever receives 6 payment. I mean, I think the number of claims that have been

7 around for more than -- mesothelioma claims that have been 8 around for more than five years, the debtors have paid a grand 9 total of $32,000 in settlement to out of about $400 million. 10 So these older claims tend not to be compensable. 11 resolved claims theyre de minimis. And in

Within the pending

12 inventory of claims, theres actually a whole bunch of these 13 older claims. So claims that were filed in 2000, 2001, 2002, Theres

14 that are still pending, but theyre really not active. 15 no active litigation around them. 16 Q

I want to make sure I understand what you said that in the

17 debtors claims history, what had been paid in terms of claims 18 older than five years? 19 A Almost nothing. So for mesothelioma claims its $32,000

20 in total has been paid to claims that had been open in the tort 21 system against the debtor for five or more years. 22 Q Okay. So this issue of the older of the older claims, it

23 think youve tried to illustrate in Debtors Demonstrative 24 D-30, if you could tell us what that graph illustrates? 25 A So this graph is looking at whats the inventory or how

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1 many pending claims are active against the debtors at any point 2 in time. And the blue line on it is just taking every open And what

3 claim in the debtors database and adding them up.

4 the green line does is it says, were going to do the same 5 process, but were accounting for the theres a certain group 6 of claims that are -- whether you want to call them inactive, 7 abandoned, theyre claims that technically arent closed in the 8 debtors database, but we know based on historical experience 9 theyre also never going to get paid. So the green line

10 accounts for that group of abandoned claims that slowly through 11 time will just keep getting larger. Every year theres more And this

12 abandoned claims that -- they really never go away.

13 is common, and you see this in pretty much every debtors -14 not every debtors, but every defendants database. 15 ever-growing inventory of abandoned claims. 16 Q So what does the green line tell you in terms of the You see an

17 debtors pending claim? 18 A It shows me really what I was expecting to see. There was

19 a large increase in claims against the debtors running up in 20 through about 2003. 21 less. They resolve most claims in four years or

So it takes about four years for that run up in claims

22 to fully -- you need about four years worth of that before you 23 get to the new stable level. 24 here. And thats really whats seen

After four years, as you get to 2006, theres about 1500 And that sat around 1500

25 pending claims that are still active.

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Mullin - Contd Direct/Evert 1 for about five years in a row. I mean, its been a little

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2 below, a little above, but theres been in the neighborhood of 3 1500 active claims, which youd expect to get resolved in some 4 manner. And then the distance between the blue and the green,

5 which will continue to get bigger if theyd stayed in the tort 6 system, is the accumulated inventory of claims that have been 7 abandoned. 8 Q 9 A 10 Q Of old claims? Old claims. Now, you mentioned a moment ago the debtors history of Please look at

11 resolving claims over a four-year period.

12 Debtors Demonstrative D-31 and if you would tell me what that 13 illustrates? 14 A So this is looking at the individually reviewed claims,

15 how -- based on the age of the claim, when did they get 16 resolved? So we see that, you know, in this chart, 764 of the So in 12 months You

17 resolutions occurred within a year of filing.

18 or less of when the claim was filed, it was resolved.

19 know, another 500 or so were resolved within two years of the 20 filing date. And then theres a very precipitous drop once you Theres a few resolutions in the third

21 get beyond two years. 22 year. 23 small. 24 Q 25 A

You know, and then years four and five, it gets very More than five, theres been a grand total of two.

And thats two in the debtors entire history? Of mesothelioma claims.

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Mullin - Contd Direct/Evert 1 Q 2 Q Right, of mesothelioma claims.

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And this is -- I said, this is looking at the individually

3 reviewed ones -4 Q 5 A 6 Q I see. -- out of the counts. So if I can return to Demonstrative D-30, if you would.

7 So this tells you at roughly -- in 2010 at the petition date, 8 there were roughly how many active pending claims? 9 A Its right around 1500. There could be a little more, you

10 know, but its right around 1500 claims. 11 Q 12 A 13 Q And that is after youve taken out the abandoned claims? Correct. And what was the debtors history in terms of claims being

14 filed on an annual basis? 15 A Its -- in the recent years its been a little above 1,000

16 claims a year, 1100 claims a year. 17 Q So how did those numbers come together to help you with

18 any kind of initial evaluation of the pending claims? 19 A Well, if you just wanted to do a very simple ballpark

20 number, thats about a year and a half worth of claim filings. 21 And previously, we showed that one year of claim filings in the 22 tort system would have received about $45 million, so if you 23 want to take about a year and a half at $45 million a year, you 24 get 67 and a half million dollars. And so thats not doing --

25 going into the detail, but its just saying at a very high

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Mullin - Contd Direct/Evert 1 level youd expect something in the neighborhood of $70 2 million. 3 Q About a year and a halfs worth of inventory.

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And did you then go into the detail in order to try to

4 make an estimate of the value of the pending claims, had the 5 debtors individually litigated the claims in the tort system? 6 A 7 Q 8 A I did. And what did you find? Well, I went through and I looked at their experience in

9 terms of over the past four years how many claims would I have 10 expected to see in each of the resolution categories? 11 had that theres about 55 high-value claims a year. So we

So over

12 the last four years I would have expected to see about 220 of 13 the claims filed in the last four years. 14 there to be about 220 high-value claims. I expect eventually These are the ones

15 that were getting close to half a million dollars a piece. 16 What Ive observed in the debtors data is 133 of those claims. 17 So I would expect theres sitting about 87 unresolved 18 high-valued claims in the debtors data, and I repeated that 19 exercise for the mid-value claims and the low-value claims, and 20 that says so relative to these typical rates per year I 21 subtract whats been observed, take whats left over and 22 multiple that by the typical value. So for the 87 high-value

23 claims, I assigned each of them a value of $475,000 and that 24 says theres a little over $40 million of high-value 25 settlements outstanding in the pending data. Similarly,

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Mullin - Contd Direct/Evert 1 theres about 28 million in the mid-range. 2 low-value, theres around 4 million. And in these

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But if you add it all up So this also

3 youd get about 72 and a half million dollars.

4 tells me that when I look at it through based on the historical 5 experience, Id say I expect about 72 million, 72 and a half. 6 The other one was 67 and a half. 7 million. These are both close to $70

So at the end, I drew the conclusion that the pending

8 claims are worth about $70 million in tort settlements. 9 Q 10 A And where does the $475,000 come from? Thats just taking the average over the last four years of

11 whats the individually evaluated claims that were paid more 12 than $200,000 actually received. 13 Q 14 A 15 Q 16 A The individually evaluated high-value claims? Correct. I see. So its just -- its that average from the last four years

17 over the period where thats been stable. 18 Q And so again, that does not include the 17 Lanier Cooney,

19 Simmons group settlements? 20 A Correct. I mean, those group settlements, as I said

21 earlier, have spread the money more evenly, so you dont -- you 22 dont see enough high-value and see too many low-value, is what 23 those group settlements do, and we made the adjustments to 24 increase the number of high-value claims that would have come 25 out if they had been individually evaluated and decreased the

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Mullin - Contd Direct/Evert 1 number that were at lower values. 2 Q So the numbers that are allocated by the plaintiffs in

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3 those settlements, youre saying, dont have as many 4 high-value claims in them? 5 A No, I mean, as I was talking earlier, those settlements,

6 if you think of a firm like Cooney, the Cooney Law Firm 7 resolved a little less than a 1,000 claims through -- they had 8 -- seven or eight of those 17 group settlements are with the 9 Cooney Firm. And they assigned about one percent of the claims

10 across all those group settlements to the high-value category. 11 If they had been individually evaluated I would have expected 12 to see five or six percent, so I didnt treat is as ten 13 high-valued claims. I treated that group as though it would

14 had 50 or 60 high-value claims. 15 Q So based on this analysis, let me be clear, what is your

16 opinion on the value of the pending claims had the defendants 17 stayed in the tort system and individually litigated those 18 claims? 19 A My opinion is that thats going to be about $70 million.

20 I mean, it could be a little higher or a little lower, but 70 21 million is the right order of magnitude for that number. 22 THE COURT: You said litigated. Is that what you This chart

23 meant, that the debtors had litigated those claims?

24 is showing what the debtors costa are through litigation? 25 MR. EVERT: Yes, thats right, Your Honor. I -- Ill

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Mullin - Contd Direct/Evert 1 ask the question again to make sure Im right, but if -2 Q

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Dr. Mullin, if based on your analysis, if the debtors had

3 individually litigated the pending claims as they individually 4 litigated the historical claims in the tort system, whats your 5 estimate the value of those pending claims in the tort system? 6 A Im -- so Ill be -- Ill try to be very precise. When --

7 litigated is not a term that Ive used, but when Ive talked 8 about the individually evaluated ones, so the ones on which 9 discovery was taken, where we had information similar to the 10 PIQ process, so we could look at claims on their own merits. 11 If that is how you evaluated these pending claims in the tort 12 system, youd come up with a number on the order of $70 million 13 dollars. 14 THE COURT: If I understand, Dr. Mullin, you put the

15 verdicts into that individually evaluated claims base -16 17 THE WITNESS: THE COURT: Correct.

-- so the 475,000 average payment already

18 considers the amounts of the verdicts, plus the amounts that 19 the debtors paid for settlement. 20 21 THE WITNESS: THE COURT: Thats correct.

So when youre talking about the

22 individual evaluations, thats the pull that youre using to 23 make this number. Youre not talking about litigating to

24 verdict in every case? 25 THE WITNESS: Not to verdict, just --

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Mullin - Contd Direct/Evert 1 2 3 verdict. 4 5 6 THE COURT: Okay. -- taking discovery. Some did go to

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THE WITNESS:

They settled at all different points along that line. THE COURT: All right. But --

THE WITNESS: THE COURT:

I just wanted to be sure that I Thank you.

7 understood what you did. 8 Q

Now, Dr. Mullin, we earlier yesterday, I guess, we

9 discussed some sort of simple actuarial extrapolations that you 10 did in terms of the potential for the future, did you then use 11 this information in terms of the current claims to do that -- a 12 similar extrapolation? 13 A Well, once you valued the pending claims your really have

14 a valuation of all the historical claims that have been filed. 15 Theres the ones that were actually resolved pre-petition and 16 then theres the valuation of the ones that were pending as of 17 the petition date. So I can combine that and now construct a You know, and that was the next

18 complete historical picture. 19 thing that I did. 20 Q All right.

Let me ask you to look at Debtors D-33 and

21 explain to the Court what that illustrates? 22 A So its a similar graph to one of the very first ones we

23 started with yesterday, but no instead of looking at things by 24 the year in which a settlement was committed to, were looking 25 at things from the perspective of the year in which the claim

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Mullin - Contd Direct/Evert 1 was filed.

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So for claims filed in 2003 there was close to $70

2 million of settlement commitments to claims filed in that year. 3 Those claims are all eight years old now. I assign no value to

4 the pending claims based on the fact that there had only been 5 32,000 paid on claim older than five years in the history of 6 the debtor. So the 2003 filing year resulted in just under $70 Then it drops a fair

7 million of settlement commitments. 8 amount.

The next two years had about $40 million of settlement And the blue lines are continuing what were the

9 commitments.

10 settlement commitments based on the year in which the claim was 11 filed. As youd expect, in the last two years those blue bars So the claims that were actually

12 get dramatically shorter.

13 filed in fiscal year 2010, very few of them had actually been 14 settled by the petition date. Thats why the blue bar for 2010

15 is very short, but the value of pending claims that were filed 16 in 2010 is substantial because the vast majority of those 17 claims remain open. 18 within two years. 19 a minute ago. And we saw -- and most claims are settled

That was one of the demonstratives we had up

The green bars for claims that are older than

20 two years are very short because theres very few -- in the 21 history of the debtor, very few of those historical claims that 22 are older than two years get paid. So Ive distributed that 70

23 million proportional to the number of claims that you would 24 expect to be compensable in each of those filing years based on 25 based on the resolution history of the debtor.

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Mullin - Contd Direct/Evert 1 Q

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So what youve done -- the blue bars are actual, for lack

2 of a better term, is that right? 3 A 4 Q Correct. So the blue bars are actual commitments for cases filed in

5 that year, and you have added to the blue bars the lighter 6 green bars, which is your estimate of the pending claims? 7 A 8 Q Correct. And in doing this youre trying to come up with a full

9 history through 2010 of the debtors claims in the tort system, 10 is that essentially -11 A Correct. This allows me to say of all the claims filed in

12 each year, what was the value of those claims in the tort 13 system? 14 Q How much was the settlement commitments?

And like the graphs we discussed yesterday -- well, just

15 explain again for me what the red-orange sort of dotted line 16 is? 17 A It is fitting, again, the shape of the Nicholson forecast

18 of future mesothelioma incidents to that historical experience. 19 And if you fit it to that historical experience, it tells you 20 you would expect approximately $700 million would be the 21 valuation of the claims youd expect to be filed in all future 22 years. 23 Q 24 A And this includes the group claims, as well, correct? Well, the group claims are still in the blue bars, so in So it has in that calibration, its going to

25 that sense, yes.

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1 be a little bit higher because the group claims got paid more 2 per claim because of the splitting of the $40,000 of defense 3 costs than the individually evaluated ones. So wed expect it

4 to be lower than 700 million when you go through the individual 5 evaluation process. 6 Q All right, well, lets talk about that. I want to ask you

7 to look at Exhibit Debtors D-29 and tell me what this is? 8 A So this is doing that same Nicholson extrapolation, but

9 now its doing it within each of the categories, so its saying 10 for a high-value claims where weve -- in the recent history 11 seen 55 per year, trend out the number of high-value claims 12 according to the Nicholson curve. 13 year its 55. So, you know, in the current

Ten years in the future maybe thats 25, just Theres fewer

14 because the incidents curve has come down. 15 claims in the future.

And if we add that up, we get just under Similarly, we get about

16 $750,000 future high-value claims.

17 1800 mid-value claims and around 1200 future low-value claims. 18 Q 19 A And -And then each of those is multiplied by its per claim

20 settlement amount to come up with a nominal settlement 21 expenditure that in total is about $600 million, and similar to 22 the pending claims that settlement amount is really driven by 23 the high and mid-value. The high and the mid-value, The low-valued claims are

24 collectively, are about 570 million. 25 30 million.

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Mullin - Contd Direct/Evert 1 Q All right. And tell me, if you would, Dr. Mullin, what

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2 does that $600 million total represent? 3 A Its a nominal number, but its the total settlement

4 payments that the debtors would have faced for future claim 5 filings if they had remained in the tort system in individually 6 evaluated claims. 7 Q Now, I guess this is the easy way for me to do this, Dr.

8 Mullin, weve talked a lot about your analysis of the 9 historical claims. Now weve looked at your analysis of the These are very different

10 PIQs and the merits of the claims.

11 numbers than the $125 million ultimate conclusion that you 12 reached in your report, so -13 A 14 Q Yes. -- I want to try to start talking about that gap. So, if

15 you would, tell me how the $125 million number in your report 16 differs from the numbers weve seen thus far? 17 A So the 125 million in my report is looking at liability as

18 opposed to settlement amounts and its looking at a several 19 share as opposed to as what occurs in a tort system where 98 99 20 percent of these claims are being resolved in jurisdictions 21 that arent imposing several liability. Theyre jurisdictions So I

22 where theres some form of joint and several liability.

23 was asked to then determine within this money how much came 24 from different sources. So of the 600 million for futures and

25 70 million for pending, so theres a total of $670 million, I

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Mullin - Contd Direct/Evert 1 went through a process of -- which ultimately came to the

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2 conclusion that about a third of this money was paid to claims 3 to avoid defense costs. If they had individually evaluated and

4 pursued the claims further, they could have paid less, the 5 debtors. And so its above the legal liability. So its about

6 two-thirds legal liability, one-third transaction costs, and 7 thats against that state tort system backdrop. And then the

8 second question I was asked is, within the two-thirds thats 9 liability how much of that is the -- in a sense, the original 10 several share of the debtors and how much of that is 11 additional amounts they were asked to pay on the tort system, 12 because many of the co-defendants no longer are paying at all 13 in the tort system and are paying different amounts, if any, 14 through successor trusts. So the second -- the last piece is

15 put Johns Manville, Eagle Picher, Celotex, U.S.G., W.R. Grace, 16 everybody back in the courtroom along with the defendants and 17 say, how much would they owe if they still had all of those 18 other companies as solvent defendants with them? And its only

19 after I make those two additional empirical analyses that I get 20 down to the number thats closer to $125 million. 21 Q Okay. I think one thing Ill ask, was the $125 million

22 also a net present value number? 23 A 24 Q Yes. And thus far I think weve only been talking about nominal

25 numbers, is that right?

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Mullin - Contd Direct/Evert 1 A Correct.

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We havent been dealing with time value of money

2 issues at this point. 3 Q So did you use econometric modeling to try to estimate the

4 debtors several share of liability, as you just described? 5 A I did. I really first went to the law and economics

6 literature to look at what the peer reviewed literature said 7 about this issue and how -8 Q 9 A And before --- that had been modeled. I took those models and I used

10 established econometric techniques to apply them to this -- the 11 debtors data. 12 Q Okay. Okay, let me ask you, was -- was the kind of

13 modeling that you did -- well, you know, Ill just ask it this 14 way. So you went to the literature, what did the literature

15 tell you? 16 A So theres about a 40-year literature at this point that I mean, its explicitly -- it starts

17 looks at settlements.

18 with a few publications in the early 1970's where its looking 19 at what are the factors that effect settlement amount? And

20 clearly, one of those factors that prominent is the expected 21 outcome at trial. You know, whats the expected liability?

22 And then theres a bunch of other factors it talks about, but 23 probably the foremost of those other factors is, what are the 24 transactions costs the two sides face, and the principal 25 transaction cost in this place for a defendant, his legal fees,

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Mullin - Contd Direct/Evert 1 expert fees?

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Similarly for a plaintiff, you have similar types And so theres a literature that looks at how

2 of fees in play.

3 do these factors besides liability impact settlements, and when 4 would you expect settlements to be more than liability, and 5 when would you expect them to be less than liability? 6 Q All right. You mention transaction costs, what did you

7 find in your review of the data and the PIQs what the average 8 number of defendants were that were sued in a Bondex case? 9 A Its approximately 50 defendants. But its -I think its in the

10 high 40's. 11 Q 12 A

And how does that affect the relative transaction costs? Well, I mean, an aggregate, if theres 50 defendants

13 defending the case and one plaintiff, theres a lot more costs 14 in aggregate on the defense side then there are on the 15 plaintiffs side. 16 representation. 17 Q And did you find -- was there literature that talks about Theres just a lot more parties that need

18 the transaction costs aspects of litigation and what impact 19 that has? 20 A There are. Theres a -- I mean, theres a concept in Its the idea when two parties are

21 economics called a core.

22 negotiating over something theres a range where that 23 negotiation could end. Just the technical term in literature The solution falls

24 is often thats the core of the problem. 25 somewhere in there.

And in many ways its no different than

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Mullin - Contd Direct/Evert 1 going to the car dealership to buy a car. You know, if ten

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2 people all buy a car at the car dealership, they could each 3 walk out paying a different price. 4 price for that car. 5 is willing to pay. You know, theres not one

Theres a range of prices the car dealer They negotiate. Depending on the

6 negotiating skill of the parties, you end up with different 7 numbers. Settlements in litigation are no different. Theres

8 a range of settlement amounts that are consistent with the 9 economic incentive the parties face. And it really defines

10 that range as -- theres the expected liability, and from the 11 defendants perspective, they face the expected liability plus 12 their transaction costs. So they want to try to resolve the If they try the case, they

13 case for as little as possible.

14 incur all the transaction costs plus on average the expected 15 liability. So if they can settle for less than their expected

16 liability plus the transaction costs thats good for them. 17 Similarly, the plaintiff has transaction costs too.

18 So they are willing to settle, in theory, for anything that is 19 the settlement -- the expected liability minus their 20 transaction costs. So you end up with this range and the

21 settlement could fall anywhere in that range from, you know, 22 the economic theory perspective and be a valid settlement. 23 know, its -- theres not one price. You

Theres a whole range of And then if they

24 prices where this case could get resolved.

25 have equal bargaining power -- so you if you have equally

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1 skilled parties, youd expect it to fall in the middle of the 2 range. They tend to split the surplus or the savings that

3 comes from avoiding the litigation costs. 4 Q And given the multi-defendant setting, does that affect

5 the transaction costs in when they occur, early versus later, 6 in the case, et cetera? 7 A I mean, it does. And what the literature focuses on is They focus on So

8 not what your absolute transaction costs are.

9 what do you save in transaction costs by settling earlier?

10 if you settle -- if theres 50 defendants in a case and when 11 the plaintiff settles with the first defendant, that first 12 defendant has no more transaction costs going forward. 13 done. The plaintiff still does. Theyre

Whether theyre litigating

14 against 49 defendants or 50 doesnt materially change their 15 transaction costs yet. Now clearly if youre the last

16 defendant and the plaintiff settles with the last defendant, 17 then all of their transaction costs end after that settlement, 18 too. So where you are in that -- excuse me -- where you are in

19 that process makes a big difference for what is the marginal 20 savings to the plaintiff. But whenever a defendant settles,

21 its transaction costs end after the settlement. 22 Q Now are there specific authors that have published in the

23 peer reviewed literature on these issues that you relied upon? 24 A I relied on a series of articles. I mean its -- the

25 literature is fairly broad.

I didnt try to put all of them in

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Mullin - Contd Direct/Evert 1 the materials. I think in my reports I explicitly reference

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2 the three original articles which -- linking Landes, Posner and 3 theres one other. 4 Q 5 A 6 Q 7 A Gould maybe? What? Gould maybe? That sounds like the third one. But those are the three But theres three original --

8 original papers that are in the early seventies and then 9 theres a whole literature that follows on those over the last 10 40 years. 11 Q 12 A Now -- so, well, let me ask you. What is econometrics?

In -- at one level, its, you know, its a whole bunch of

13 statistical methods that are tailored to the types of problems 14 economists look at, but at its most basic level what its doing 15 is its sophisticated statistical tools that allow you to when 16 you have multiple factors affecting an outcome and you want to 17 understand what does one of those factors do. Econometrics is

18 a set of tools that lets you figure out what the individual 19 factors are doing even though you dont observe that directly. 20 So it allows you to draw inferences about things that arent 21 directly observable and its used in a large, you know, large 22 array of settings. 23 Q So you used econometric modeling to try to separate the

24 settlements into their constituent parts on some level, is that 25 what Im hearing?

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Mullin - Contd Direct/Evert 1 A In essence, yeah, theres lots of -- theres multiple

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2 factors that affect a settlement and Im trying to -- at its 3 core what I tried to do at the end was say I wanted the ones 4 that moved with damages. So payments to claimants that are a

5 function of the damages that the claimant suffered is what I 6 was trying to capture, claimants that have -- payments that 7 have nothing to do with their damages that were a function of 8 these transaction costs, I was trying to separate those two 9 factors. 10 Q Are you aware if similar techniques have been used in

11 other asbestos bankruptcy cases? 12 A 13 Q 14 A Yes. And where did that occur? Probably the most direct analogy is the Owens Corning In the Owens Corning bankruptcy, Judge Fullam

15 bankruptcy.

16 directed the parties to remove the impact of punitive damages. 17 So you had the settlement history of the claimants and you knew 18 what they settled for and he had determined in the ruling that 19 you needed to remove the portion of the settlement that was 20 attributed to the release of the punitive damage claim. And a

21 series of experts including my own firm in that went through 22 and tried to do that process of taking the settlement data and 23 identifying what was attributable to punitive damages versus 24 everything else. 25 Q How about other types of litigation?

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Mullin - Contd Direct/Evert 1 A Its very common in other types of litigation, like my

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2 firm does a lot of work in cartel cases.

So five companies get

3 together and they collude on prices, then the prices are 4 artificially high. You know theyre too high and the question

5 for damages is if they hadnt colluded what would the 6 appropriate prices have been. So youre trying to back out how

7 much were the prices inflated due to the collusion of the 8 cartel. You dont observe what the prices were when they were

9 colluding, so you have to draw inferences to how much of the 10 observed price was a function of the cartel versus how much of 11 the observed price was due to the fact that the cost of their 12 inputs were changing or other factors that would be normal 13 variation in prices. 14 Q Any other litigation in which youve been involved in this

15 which is -- which this is a regular question? 16 A I mean, its a -- similar, regular questions like this They want to know whats the competitive

17 come up in mergers.

18 impact, so if you have four companies in an area and two are 19 trying to merge, whether its the Department of Justice or the 20 Federal Trade Commission, whoever its assigned to, will look 21 at that and they try to forecast whats going to be the change 22 in price levels if we allow this merger to go through versus if 23 we deny it. So its these similar questions where youre

24 trying to -- you dont directly observe this, but theres 25 well-established econometric techniques that allow you to draw

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Mullin - Contd Direct/Evert 1 inferences about whats likely to happen. 2 Q

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So at the debtors request your task was to model what of

3 the debtors historical settlement payments were connected to 4 damages, have I got that right? 5 A What was connected to damages or liability, that sense,

6 and what was connected to other factors that arent associated 7 with damages where really from the -- the debtors main 8 motivation for that was legal fees and thats why I ended up 9 using the term implicit defense costs just to give it a name in 10 my reports. But thats really what was the main economic

11 motivation for the debtors to outside of the damages or 12 liability they faced. 13 Q All right. Lets talk about how you did that and Im

14 going to use Debtors Demonstrative D-35 and if you would, Dr. 15 Mullin, tell me what that means and why its important. 16 A Well, clearly for almost all of the debtors historical These arent

17 claims, we dont actually observe the damages.

18 cases that, you know, about 30 of the cases went to trial and 19 only 12 of those or so were plaintiff verdicts. So only in 12

20 cases do we observe what a jury says were damages that the 21 claimant suffered. So for almost all cases the actual damages

22 of the claimant arent something that I can directly observe. 23 So I need a proxy for that. 24 correlated with it. I need something that is

That will give me a statistical So the,

25 relationship that I can use to draw an inference.

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Mullin - Contd Direct/Evert 1 based on my experience, I knew that age was a very likely 2 candidate and if you look at how age moves with verdicts, 3 younger people consistently get higher amounts. 4

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The form as it is with most financial numbers, if you If

5 notice the X-axis in this is done in logarithm of dollars.

6 you -- for almost all financial variables, when you do things 7 in logarithms, the statistical relationships are better and 8 theres a bunch of reasons for that. But you get this nice

9 straight line when you look at things in terms of the log of 10 the actual verdict amount compared to age. 11 says its a percentage movement. So which really

When you do things in logs,

12 its telling you that for each additional year of age, the 13 typical verdict amount decreases by a certain percentage. 14 not that its 50,000 a year. 15 points a year. 16 Q 17 A 18 Q 19 A Its 1 percent higher or 2 percent higher or whatever? Correct, as opposed to a fixed dollar amount. Now are these the debtors verdicts? These are all verdicts. Well, I shouldnt say all. These Its

Its that its a few percentage

20 are all the verdicts that I have accumulated through time that 21 we have data on. So they may come through a Mealeys

22 Litigation Report that provides information on the verdict, it 23 may come through Westlaw. Weve done a lot of research through

24 the years trying to compile a database of all plaintiff 25 verdicts because defense verdicts dont have any damages, so

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Mullin - Contd Direct/Evert 1 this is just plaintiff verdicts.

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But its a compilation of all

2 of the ones that weve been able to identify through publically 3 available sources. 4 Q 5 A 6 Q 7 A Verdicts in the asbestos litigation? Correct. Yeah. These are all asbestos related verdicts for mesothelioma

8 claims. 9 Q And then -- so youve got this model that tells you that Whats your next

10 damages clearly move in relation to age. 11 step? 12 A

So the next step is what the literature tells you is if a

13 debtor has material trial risk, either debtor or defendant, so 14 if theres a defendant that has material trial risk, if theres 15 one plaintiff who has a half million of damage, that thats 16 what theyve suffered and another plaintiff who suffered 17 2 million of damages, all else equal. So were going to assume

18 all the underlying facts of the case are identical except for 19 the amount of damage suffered. You would expect the claimant

20 who had 2 million of damages to settle for about four times 21 what the claimant with only half a million of damages received. 22 Thats the connection youd expect to receive. 23 And one of the insights thats in the peer reviewed

24 literature is if you dont see that, so if you see those two 25 settle for the same amount, that tells you that damages arent

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1 entering the negotiation because if theres a 50 percent chance 2 theyre going to be liable, the one should settle for half a 3 million, the other should settle for 2 million. Instead, if

4 they both settle for 100,000, the fact that the one has larger 5 damages doesnt matter means the only outcome in which that is 6 the logical conclusion is when there was no chance of liability 7 or the liability was de minimis. I mean, if theres a

8 1 percent chance of liability, its not going to move the 9 number very much, but it means you have a de minimis chance of 10 being found liable if the settlement amounts dont increase 11 with damages. 12 Q So Ive put in front of you Debtors Demonstrative D-36

13 which is entitled the simple transaction cost model of 14 settlements which weve abbreviated as TCMS. Is this

15 graphically attempting to illustrate what you just described? 16 A Correct. So the blue line really looks like the blue line With verdicts, theres

17 in many ways like we saw in verdicts. 18 always liability.

I mean, we were only looking at plaintiff

19 verdicts and we see that the line declines the whole way as the 20 line is downward sloping which actually means younger claimants 21 are receiving more money. All right. If what we were to see

22 instead is the dashed yellow line, so we had a flat line, 23 where, you know, the amount of money and the age dont have a 24 relationship. So as the -- you know, then its saying thats

25 an indication based on the peer reviewed literature that thats

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Mullin - Contd Direct/Evert 1 a settlement that had nothing to do with liability.

180 Thats a

2 settlement thats driven by the transaction costs while 3 settlements that fall on the blue line are settlements that are 4 driven by liability. 5 Q Now would that be what lawyers often call nuisance

6 settlements or is that different than nuisance settlements? 7 What is that? 8 A How does --

In -- its so -- if by nuisance, I mean, we should define

9 the term, but frequently as its used, yes, it can be a 10 nuisance settlement, you know, and theres -- in the literature 11 they might call them a negative expected value settlement. But

12 its a settlement for which if the plaintiff actually had to 13 incur all their costs, theyd choose not to pursue the case. 14 Q All right. So youve called this the simple transaction If you look at Debtors

15 cost model of settlement.

16 Demonstrative D-37, you call that the generalized transaction 17 cost model of settlement and tell me what the difference is. 18 A Well, the simple one is really talking about maybe a In reality, So

19 single negotiation with one plaintiff attorney.

20 the debtors faced over 100 different plaintiff attorneys. 21 theyre having these negotiations with many, many counter 22 parties.

So even though maybe -- and theyre actually using

23 many different sets of local defense counsel to have these 24 negotiations. So theres no reason to think that each of these

25 negotiations comes out the same way.

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So where on any given relationship we still going to

2 have the section where all the very low value settlements or 3 all these ones out on the yellow line are going to be more in 4 this nuisance category. Theres going to be a range of

5 negotiating skill across the groups and theres going to be a 6 middle area which is the green. And the green is that some

7 settlements in this range are driven by liability and others 8 arent and thats a function on the relationship across these 9 100 different law firms the negotiation is. 10 break at the same point. They all dont

So if I were to go back to the first

11 one, its really saying where the yellow line and the blue line 12 intersect, if we go back to Demonstrative 36 -13 Q 14 A Yes. -- these intersect at a different point in each of these And the green line is the range of So all the high value Wed

15 relationships potentially.

16 points over which they intersect.

17 settlements we would expect to be driven by liability.

18 expect all the very low value settlements to be driven by 19 transaction costs. So if youre settling a claim for $5,000 as

20 a debtor or, you know, as the debtors history when they add a 21 $300,000 cost of trying a case, the potential trial costs are 22 the bigger financial concern. 23 that settlement. Thats really whats driving

They arent settling a claim for half a

24 million dollars to avoid $300,000 of transaction costs. 25 Theyre settling that claim because theyre really concerned

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Mullin - Contd Direct/Evert 1 about liability. 2 its a mixture.

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And then theres a group in the middle where Some of those settlements are driven by Both are

3 liability, some are driven by transaction costs. 4 material factors. 5 Q 6 A 7 Q

And did you apply the debtors history to this model? I did. And if you would look at Debtors Demonstrative D-38, tell

8 me what you found. 9 A What I found is that really for all the settlements above

10 $200,000, you know, liability is the larger driving factor. 11 Its not exclusively that, but it is really whats driving the 12 settlement. 13 Q 14 A And thats the blue line? Thats the blue line. And the dashed line going down And empirically when I So I

15 corresponds to a $200,000 settlement.

16 did this, I let the data tell me where these lines move.

17 didnt come in and say this is 200, this is 50,000, the other 18 one. I went and allowed the data to say what gives the best So I used the econometric tools to Where do we transition And

19 fit to their experience.

20 say where are these transition points.

21 from the yellow line to the green line to the blue line?

22 thats really where the econometrics tools came in is they 23 let -- so these come out of the data that says settlements less 24 than 50,000 have no connection to the damages of the claimant. 25 These are settlements that generally are in that nuisance

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Mullin - Contd Direct/Evert 1 category. 2 mixture. 3 Some of these, you know, liability is a material

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Settlements in the range of 50,000 to 200,000 are a

4 factor, but at the same time so are the transaction costs and 5 that really makes sense not only in terms of the data tells us 6 that, but if we just think about it if its $300,000 to try a 7 case and youre getting out from under as the debtors $300,000 8 of potential litigation costs, youre willing to pay something 9 to get out from under that. But youre not going to normally So theres -- both are

10 pay 175,000 to get out from under that. 11 a material component.

And, again, above 200,000 it really is

12 the liability thats the driving force. 13 Q Now let me just make sure I understand the graph not being The bubbles, what are the bubbles?

14 much of a scientist. 15 A

So the bubbles are there to represent the actual So each bubble represents a

16 settlement history of the debtors. 17 set of settlements.

If its a large bubble, it means theres a If its a small

18 whole bunch of settlements in that bubble. 19 bubble, theres a few.

So what I did is for every few thousand

20 dollars of settlements, reconstructed what was the average age 21 and put a bubble at the height of that average age and the size 22 is proportional to the amount of claims that fall in it. 23 its really -- if I plot every single settlement up here 24 because theres thousands of them, youd just see black. So So

25 its a way to try to show you where is the settlement data,

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Mullin - Contd Direct/Evert 1 what is the actual history, how well is this fitting.

184 So you

2 can think of that as the actual and it really is their data, 3 but its means of small groups as opposed to every single 4 settlement being a different little circle on the graph. 5 Q And how does one pick where the line goes through the

6 bubbles? 7 A Well, you dont really pick. The line -- I mean, the I asked

8 econometrics is what did that.

So the data told me.

9 it to run a model and I asked it to pick where, if anywhere, 10 are there these transitions and well see some examples later 11 where the data tells me theres not a transition like for 12 verdicts. 13 line. When I run this on verdicts, all I get is the blue

The data on verdicts tells me all the verdicts are Theres no impact or transaction costs on

14 driven by liability.

15 a verdict which makes sense because verdicts are the actual 16 damages that the jury came to and you wouldnt expect 17 transaction costs to, but the data gives you that answer at the 18 same time. So its letting the data tell you at what point did

19 the -- does the influence of liability versus transaction costs 20 become more pronounced. 21 Q So just returning for a second to Demonstrative D-35 which

22 I think you just referenced, that blue line was chosen by the 23 data? 24 A I ran the exact same econometric model to produce this

25 graph as I did on the debtors data and when I run it on

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1 verdicts it tells me 100 percent of the verdicts are a function 2 of liability. None of it has to do with transaction costs. If

3 it hadnt told me that, I would have been very concerned about 4 the model because verdicts shouldnt have transaction costs in 5 them and it turns out that when you do the empirical exercise, 6 it confirms that they dont. 7 Q So, Dr. Mullin, Ill draw your attention to Debtors

8 Demonstrative D-39, ask you to summarize your findings for me 9 as illustrated there? 10 A So what the debtors settlement history has taught me

11 through this process is its -- I mean, to use the term you 12 used earlier, these low value settlements are nuisance claims, 13 so what really constitutes a nuisance claim. 14 settlement, a 5,000, 100,000? 15 for that is $50,000. Is it a $1,000

The data tells me the threshold

Settlements for $50,000 or less dont

16 have anything to do with the damages that the claimant 17 suffered. So its these other factors that are driving those Settlements between 50 and $200,000 are being,

18 settlements.

19 you know, strongly affected both by the transaction costs and 20 by liability. Its a mixture of both. And when I get to

21 things above 200,000, its really those are cases that are 22 pretty much being driven by liability. 23 Q All right. Let me stop you there and let me go back to

24 Demonstrative D-38 and have you explain that with the graph. 25 So low value settlements do not move with damages. Explain to

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Mullin - Contd Direct/Evert 1 me how that appears on the graph. 2 A What its showing you is as the settlement amount

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3 increases, the average age of the claimant isnt changing, they 4 arent getting younger. You would expect if its moving with

5 damages on average for the higher value settlements being paid 6 to claimants that are younger. 7 higher damages on average. 8 told us. Those are the claimants with

Thats really what the verdicts

So the fact that the yellow line is flat and its

9 structured this way because this maps exactly to how the law 10 and economics literature views the problem is that when that 11 line is flat, theres not a connection to damages and this is 12 being driven by transaction costs. Once you start to get that

13 downward slope where it starts moving with damages, now we know 14 theres a chance of liability because the damages are 15 influencing the settlement amount. So theres a material

16 chance of liability once that influence comes in and that first 17 happens when we transition to the green line. 18 Q So based on the data, that transition occurs at

19 settlements of $50,000 roughly speaking? 20 A Right. Below 50,000 is really these transaction costs are Above 50,000, transaction costs still matter,

21 nuisance claims.

22 but liability is a material component, as well. 23 Q 24 A And how do you determine how material a component? Well, the nice part about the model is you really tell in Between 50 and

25 that mid-range its the relative movements.

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1 200,000, its not as sensitive to the damages or the age of the 2 claimant as the ones over 200,000. So the relative strength of So if you assume

3 the movement tells you how to do that split.

4 that you basically have 100 percent on the blue line, if the 5 green line was half the slope of the blue line it would be 6 telling you youre getting half the movement which means half 7 of whats going on is driven by transaction costs because half 8 is, in a sense, not moving with it and half is. So you can

9 compare the slopes or the sensitivity of the damage or the 10 settlement amount to age or damages and by looking at how 11 sensitive it is in the movement allows you to draw that 12 inference. 13 Q 14 A 15 Q 16 A And the slope changed again at $200,000? Correct. And why was that, in your view? I mean, I didnt have a preconceived notion that 200,000 It made

17 would be some magic number that it would change at. 18 sense to me that it had to be less than 300,000.

Youre not

19 going to pay more than 300,000 to avoid 300,000 of litigation 20 costs. So it needed to be below 300,000 that liability was the 200,000 is below that. But beyond that,

21 principal component.

22 its really the data is what informs me. 23 teach me.

Im letting the data

Im not trying to impose myself on their history.

24 Im having their data teach me about what are the 25 characteristics of claims in these different ranges.

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Mullin - Contd Direct/Evert 1 Q

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And so with all the information that you just described,

2 if you would, tell me what the quantitative impact is of all of 3 that? 4 A Well, it tells us that these low value settlements, if I

5 just kind of go through the order there on the demonstrative, 6 the low value settlements, you know, arent moving with damages 7 so the probability of liability is de minimis. 8 really not much of a contribution there. So theres

Its not to say that

9 if you tried every single one of those cases there would never 10 be a plaintiff verdict, but its telling you that whats there 11 is really quite small, while in the mid-value range when you 12 compare the slopes youre getting 35 to 40 percent of the 13 sensitivity that youre seeing with the high value cases. So

14 its saying 35 to 40 percent of whats going on is being driven 15 by the underlying liability and the rest is the transaction 16 costs. So its giving me that split. And then on the high

17 value claims, its telling me that these are driven by 18 liability. The transaction costs are still there. The debtors

19 still care about them.

Its still on this $75,000 order of

20 magnitude thats observed in the mid-range, but its a very 21 small L (sic) percentage of the total. Where these claims are

22 getting around half a million dollars, 400,000 of that is 23 really being driven by liability. 24 And, again, thats very similar to if we were to go We saw that the debtors

25 back to what we saw with the verdicts.

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Mullin - Contd Direct/Evert 1 offered about 335,000 per verdict. Their final settlement

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2 offer on the cases that went to trial averaged about $335,000. 3 Post-trial, they paid on average 250,000. So their average

4 settlement offer on the cases they actually tried was $85,000 5 more than what they were ultimately found to have to pay post6 verdict. 7 the same. 8 Q Now applying that, Dr. Mullin, to the work that you had So its a very -- its comforting that those come out

9 done on the data that we have discussed previously, what -- to 10 what conclusion did that lead you? 11 A So this does nothing to change the number of claims that So these are staying exactly

12 are in each of these categories. 13 the same as it was before.

Im expecting about 87 more high Theres about 750

14 value claims in the pending inventory. 15 future claims.

Those -- and those counts by category stay The difference now is

16 exactly the same as they were before.

17 were saying the low value claims, these ones that are under 18 50,000 are really de minimis, so Im modeling that as zero. 19 Im modeling the mid-value claims as based on this split of 20 about one-third, two-thirds, about 35 percent. There is

21 approximately 50,000 of what was being paid was attributable to 22 liability and the remainder was transaction costs and about 23 400,000 of the high value settlements, you know, about 400,000 24 on average was attributable to liability. So Im looking at

25 now these 400,000, 50,000 and zero instead of 475,000, 120 and

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Mullin - Contd Direct/Evert 1 25,000.

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And at that point its just very straightforward math.

2 Youre multiplying the number of claims times the average 3 amount to get a total and it comes out at about $435 million as 4 opposed to the $600 million or $670 million that we observed 5 before. 6 Q And so the one is about two-thirds of the other. Are you rounding

The dollar amounts are all pretty round.

7 these numbers? 8 A I am rounding the numbers and I dont think the data is So, you

9 good enough to draw precision down to the last dollar.

10 know, when I do the transaction cost model, theres a very 11 precise number in the math that comes out of that, but theres 12 clearly a confidence interval around that. Ive rounded things

13 off to, you know, close whole numbers in this. 14 Q So rounding to $435 million which is the total at the

15 bottom of this demonstrative, what does that number represent? 16 A So that number if -- what it really represents is if you

17 did -- it was -- if there -- if attorneys were free, experts 18 were free and we tried every case, its really saying we -- the 19 expected sum of all the verdicts that would come back we think 20 would add up to $435 million. You know, its saying thats the Now

21 concept, whats really the expected liability here.

22 clearly we dont try every case and thats cost prohibitive to 23 do, but thats the thought exercise here. If we had litigated

24 every case through trial, youre on both sides, there would 25 have been a total of about $435 million.

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Mullin - Contd Direct/Evert 1 Q 2 A Did you do anything, Dr. Mullin, to validate the model? I did a number of different exercises to validate the

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3 model.

The first set was really looking at other data sources So if I ran this same model on

4 and seeing if it was robust.

5 different data sets, you know, would I get an answer that made 6 sense because if I dont on a different data set, it would make 7 me question whether what I was doing here was reliable or not. 8 So I went, as we talked before, one of the first ones You know, verdicts have -- its after all the

9 was verdicts.

10 transaction costs have been incurred, the jury doesnt care 11 about the verdict, about the transaction costs. When we run

12 the model on verdicts, it tells us all we get is the blue line, 13 everything is liability, transaction costs dont matter. And

14 thats very comforting because you could have contradicted the 15 model. You could have come back and said, no, when we look at

16 verdicts it says 30 percent of this is transaction costs. 17 Well, wed know that was false. 18 outcome. 19 Q But it doesnt give us that

It gives you exactly what youd expect.

So, in short, when you run the model on verdicts, it

20 works? 21 A 22 Q 23 A Correct. Did you look at any other external data sources? I looked at -- I mean, for the context here Im limited in

24 which of the data sources that are available to me, generally, 25 I could actually use in this context. So one of the data

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1 sources I am allowed to use in this context is I have a version 2 of the Center for Claims Resolution data that I -- Bates White, 3 not just myself individually, but Bates White is allowed to use 4 and so I was able to use their settlement history which really 5 runs through about 2001, but its looking at, you know, the 6 settlement history of the CCR member companies in the 7 aggregate. So its whether the CCR as a group pay for claims.

8 Thats what Im allowed to use out of that data. 9 Q All right. Well, I want to talk about that and now were So if youd look at

10 talking about really big bubbles.

11 Demonstrative D-42 and if you would tell the Court what that 12 illustrates. 13 A Well, its really big bubbles because theres a huge And so where

14 number of nonmalignant claims during the 1990s.

15 we had a couple thousand claims of the debtor to work with, in 16 the CCR they had hundreds of thousands of historical 17 nonmalignant claims that were resolved. And since the bubbles

18 are proportional to the number of claims, they just get much 19 bigger. But what this is doing is I ran the exact same

20 transaction cost model of settlement, did the exact same 21 econometric techniques -22 23 24 25 THE COURT: MR. EVERT: Can you stop whoever is keeping the time? Please dont tell me I pushed the button. Yes, you did.

UNIDENTIFIED SPEAKER: MR. EVERT: Oh.

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Mullin - Contd Direct/Evert 1 UNIDENTIFIED SPEAKER:

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It might have been CourtCall

2 who hung up. 3 4 5 or -6 7 THE COURT: Jan, do you need a few minutes? Im on hold for CourtCall. No ones (Pause) UNIDENTIFIED SPEAKER: Should we take a short break

COURT CLERK:

8 answering -9 THE COURT: Want a five-minute recess? Well, lets

10 just take a five-minute -11 12 13 14 15 16 17 18 19 20 21 THE COURT: UNIDENTIFIED ATTORNEY: THE COURT: -- recess. Thank you, Judge. I think it makes sense.

UNIDENTIFIED ATTORNEY: THE COURT: All right.

UNIDENTIFIED SPEAKER: UNIDENTIFIED SPEAKER:

We can get a break? Yeah, a five-minute break.

(Recess) Please be seated. Yes. Dr. Mullin, ready?

THE WITNESS: THE COURT: MR. EVERT:

All right, Mr. Evert. Thank you, Your Honor.

22 BY MR. EVERT: 23 Q All right. Dr. Mullin, I think we were talking about

24 Debtors Demonstrative D-42 and the really big bubbles I think 25 is where we left the conversation. So why are these really big

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Mullin - Contd Direct/Evert 1 bubbles? 2 A Because there was a very large number of nonmalignant

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3 claims resolved by the CCR during the 1990s. 4 Q So these are nonmalignant claims. Tell me why youre

5 using nonmalignant claims in this context. 6 A Well, I thought that it would provide a good test of the I mean, looking back in hindsight, we know that the

7 model.

8 vast majority of the nonmalignant claim payments werent driven 9 by damages to the claimants. Weve seen the number of

10 nonmalignant claims decline from about 60,000 a year down to 11 about 3,000. So theres only about 5,000 per year today and

12 when you go through and see how many actually had impairment, 13 its a small number. And so when you -- I expected when I ran

14 the model on the nonmalignant claims to see the vast majority 15 of them not move with damages because thats not what was 16 driving the litigation and for a small minority associated with 17 the ones that actually have, you know, impairment, decreased 18 lung function to see the relationship. And the relationship

19 that comes out is right about what one would expect. 20 Weve seen about a 95 percent decline in nonmalignant

21 claim filings as the various tort reforms that required 22 impairment came into effect. And so we see that when you look

23 at the history it would have told you that thats about the 24 decline that should have happened. Were seeing that about 95

25 percent of the nonmalignant claims didnt move with damages.

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Mullin - Contd Direct/Evert 1 Thats not what was driving that litigation and about 5 2 percent, technically 4 percent here, did move with that and 3 thats really whats persisted in the tort system is that 4 4 percent or so of nonmalignant claims out of the historical 5 counts that were actually physically impaired. And so

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6 thats -- its another place where its lining up with what we 7 now know about those claimants. 8 The other piece that I take from this is I kind of

9 view this as how an econometrician would have made an argument 10 about the nonmalignant claims in the previous bankruptcy 11 proceedings and there was a lot of historical debate over the 12 value of nonmalignant claims and we saw large movements like 13 the U.S.G. Trust has a collar that pays about 15 percent to 14 nonmalignant claims even though it was a CCR member company and 15 55 percent of its historical payments went to nonmalignant 16 claims. So there where we saw this the nonmalignant claims

17 were really this group that was driven by transaction costs, we 18 saw that debate take place in previous bankruptcies and its 19 really the same thing Im doing here. This is how an

20 econometrician would have done it, have come in and said we can 21 look at the data and say about 95 percent of those are 22 transaction costs, about 5 percent of those have liability. 23 The 5 percent with liability on average have received more 24 money, as well, so its more than 5 percent of the money that 25 went to the impaired nonmalignant claims, but it comes out

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Mullin - Contd Direct/Evert 1 pretty close to what we saw the debate going through those 2 bankruptcies. 3 Q So refresh my recollection. When did the CCR exist

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4 roughly? 5 A So if we go back, there was originally a Wellington

6 Agreement which created a very large group of defendant 7 companies that decided to jointly defend. 8 lived in the late 1980s. That was very short

Many of the larger defendants opted

9 out of that agreement and the CCR was the 21 companies that 10 remained in, in effect. So its really about 1990 through 2001

11 the Center for Claims Resolution was litigating claims on 12 behalf of its 21 member companies. Now some of those companies

13 fell out along the way, so it wasnt the same 21 the whole way, 14 but its about 20 companies over the decade of the 1990s. 15 Q And was this data from the inception of the CCR? Is

16 that -- thats really the point? 17 A No, this graph is actually looking at I believe -- I think

18 its 1997 through 2000 or so. 19 Q 20 A Okay. In 2001, the CCR was starting to break apart and so the So I didnt want to co-mingle the

21 settlement process differed.

22 ones at the end when things were operating differently with the 23 earlier ones. And Georgine, or the attempted Georgine really So I was looking at a

24 affected the behavior in the early 90s.

25 period of 97 to 2000 when there was a large number of -- was a

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1 very large number of claims and there was a relatively stable 2 litigation environment. 3 Q And here on this particular graph, the dotted line, is it

4 $35,000? 5 A 6 Q 7 A Correct. So why is that? Well, again, this is what the data tells us. So its --

8 what its telling us is settlements for less than 35,000 by the 9 CCR, now thats on behalf of, again, about 20 companies, so 10 settlements for less than 35,000, to get releases for those 20, 11 21 companies really werent connected to damages. 12 driven by transaction costs. Theyre

Settlement for more than 35,000,

13 you know, liability was playing a substantial if not, you know, 14 demonstrative role. 15 is no green line. The -- youll notice on this graph there

When you try to -- when you run the model, It really just says

16 it doesnt indicate a transition period. 17 theres only the two.

Theres kind of a clean break at 35,000.

18 It doesnt have the transition period that we observed in some 19 of the other models. 20 Q And the bubbles are so large, if I understood what you

21 said, because there were thousands of nonmalignant claims 22 against the CCR? 23 A 24 Q Tens or hundreds of thousands, yes. And so just summarize for me how does this data then

25 confirm and validate your transaction cost model?

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Mullin - Contd Direct/Evert 1 A

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Well, it tells us that the econometric inference you draw

2 aligns with our understanding of how those claims actually 3 existed. So its another place where we kind of know in We may not have known at

4 hindsight what the answer should be.

5 the time, but in hindsight we know what the answer should have 6 been and the econometrics comes out consist with that 7 knowledge. 8 Q Did you perform any sensitivity analysis on your model,

9 additional sensitivity analysis, I should say? 10 A I did. When I constructed the model, I -- as I said, I

11 let the data pick where these points are, so the data told me 12 50,000 and 200,000 as the transition points. In that search

13 for that, it at the same time tries a whole bunch of other 14 specifications. So as its -- the econometric technique is

15 really searching over the whole family of potential outcomes. 16 It looks at every possible spot where those breaks could be and 17 it says which one fits the data the best. And so when you look

18 at that, you can kind of go across it and say, well, how 19 sensitive is the answer to the second best or the third best or 20 the fourth best model. 21 Q I put up Demonstrative D-43 which I think actually maybe Can you

22 Dr. Vasquez may have raised at some point, as well. 23 illustrate what this is? 24 A

Well, the model number labels are actually model numbers

25 of alternative specifications that came directly out of Dr.

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Mullin - Contd Direct/Evert 1 Vasquezs rebuttal report.

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But its really exactly what I did So

2 when I came to the conclusion that the answers were robust.

3 what its doing is its searching over alternative points where 4 these transitions could be and hes labeled 1 through 40 as the 5 ones that provide the 40 top models in terms of providing the 6 best fit. And so his critique of me was that mine was the 39th

7 one in that list based on his specifications. 8 Q 9 A Is that the green line? That is the green line is the model that I was using. The

10 point that I really draw from this is he didnt go this extra 11 step, so this isnt something youre going to see in his 12 report. He stopped one step in front of this. He looked at

13 the specifications of the various models.

I just took that to

14 the next step to say for each of those top 40 models what do 15 they say is the amount of money associated with transaction 16 costs. And all of these are between 70 and $80,000. So all

17 top 40 models all tell you that its between 70 and $80,000. 18 You know, so they really give you a very high degree of 19 confidence that the true answer is right around $75,000 because 20 even as I look across these I always get the same answer. You

21 know, the orange line which is the 68th model in Dr. Vasquezs 22 list is -- I include that one because thats the model that 23 actually says theres only two line segments. 24 Q 25 A Like the CCR model. Similar. Its the one that says even though Im going to Its the one --

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Mullin - Contd Direct/Evert 1 let it pick any two points it wants, it put both points at 2 $200,000. Then it says even though I could put it somewhere

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3 else, Im going to put the two points on top of each other. 4 And what its really telling us is theres a very big 5 difference between claims that were paid more than 200,000 and 6 claims that were paid less. Thats a, you know, statistically

7 in terms of the confidence you have in that, its exceedingly 8 high. So its coming in and saying we know the behavior of

9 claims that were settled for more than 200 is profoundly 10 different than the ones that are less. 11 What the remainder of this says is where you put the As long as you

12 second transition point doesnt really matter.

13 have one transition at 200,000, so the claims above 200,000 can 14 be allowed to behave very differently than the ones below, all 15 these other ones are alternative points for the second 16 transition point, but all of the 40 models that are in the top 17 ones all have that transition at 200,000. Now some might be

18 210,000, but theyre all right, they all have one transition 19 thats right around 200,000 and then it really doesnt matter 20 where you put the second one. So it says its really very

21 robust or insensitive, the final conclusion, to where you put 22 the second point. So whether you truly believe that zero to 50

23 is de minimis and 50 to 200 has a material portion of both, or 24 theres a little bit of liability in the zero to 50 range and a 25 little less in the 50 to 200 (indiscernible), because thats

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Mullin - Contd Direct/Evert 1 really what these alternatives are doing, you get the same 2 answer. So this is why I came to the conclusion that the

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3 findings are very robust to alternative specifications. 4 Q Now, Dr. Mullin, you indicated that all of the models

5 indicate a transaction cost of between 70 and $80,000, is that 6 what you said? 7 A When you look, I mean, a couple of these might technically

8 be a hair below that, but as look at this graph, 75,000 is the 9 line going across. 10 above it. Theres a number that are a little bit

Theres a number that are a little bit below it.

11 But theyre all right in that neighborhood. 12 Q 13 A So you took the midpoint? I mean, I used the green line, but in terms of

14 sensitivities this is telling me that Im within 3 percent of 15 the truth. 16 too high. You know, so I could be a couple percentage points I could be a couple percentage points too low, but

17 Im not off by a lot. 18 Q So returning momentarily, Dr. Mullin, to Debtors

19 Demonstrative D-40 which I think you described earlier what the 20 $435 million number is, this is, first, again, a nominal 21 number, correct? 22 A 23 Q Correct. And this is assuming that we are -- you have used

24 settlements in the historical debtors database that are 25 associated with damages or liability, is that right?

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Mullin - Contd Direct/Evert 1 A 2 Q Correct. And where at this point in time you have not tried to

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3 calculate if there is an impact if you try to look at the 4 debtors several share, is that right? 5 A I have not. And what we showed really on the last slide

6 was that theres about a plus or minus 3 percent to this number 7 based on model specification which is 12, $13 million. So its

8 really saying the range is actually the adjustment for the 9 transaction cost isnt creating a large amount of uncertainty 10 in the answer. 11 Q Okay. Now did we ask you to try to determine and use the

12 techniques that you could to determine what the debtors 13 several share of liability would be taking into account all 14 payers in the asbestos litigation arena? 15 A 16 Q 17 A Yes. And how did you go about doing that? Well, I first looked at it more conceptually and laid out

18 for the debtors what would be the data that would allow me to 19 do that at a very straightforward manner. I mean, theres been

20 many asbestos related bankruptcies at this point, so many of 21 the companies that were originally paying in the tort system 22 are no longer there. And one could do this in a very

23 straightforward manner if you had data say from 1990 through 24 today on how much money plaintiff recovered in the tort system, 25 how that changed as various parties went into bankruptcy. So

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1 whether its Eagle Picher and Celotex and things in the early 2 90s, whether thats Owens Corning and W.R. Grace and U.S.G. in 3 the early 2000s, we could see how did those total recoveries of 4 claimants decline or not decline and directly observe how much 5 was transferred to the remaining solvent defendants. 6 So if when these companies leave the tort system, you

7 know, if they were getting a million dollars a claim and the 8 parties paying half a million leave the tort system, if the 9 claimant gets 750,000 a claim afterwards, its a simple 10 tabulation, you know, that, okay, half of what left was 11 transferred, half of what was left wasnt transferred. You

12 know, so that would have been my preferred method because its 13 then just directly out of the data. 14 draw inference. I dont really need to

I can just precisely quantify what were the

15 impacts of both the companies leaving and subsequently when 16 their trusts came on line when those started paying how much 17 did that maybe offset the transfers that occurred earlier. 18 Q Let me stop you there. Is that when you and your firm

19 worked with the debtors in the early part of the case in regard 20 to their 2004 discovery requests? 21 A Correct, I was seeking the data that would have allowed me

22 to do this in the most straightforward manner. 23 Q Okay. Now given that that data was unavailable, what was

24 the next best alternative? 25 A I really looked at a series of what I and I have described

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1 before as really second best alternatives for looking at this, 2 each one of which has a potential flaw, you know, and thats 3 why I looked at a few different ones to see if they could all 4 come out in the same neighborhood. And if theyre all coming

5 out in the same neighborhood, even though each one has a 6 different potential flaw to it, youd start to have some 7 confidence that youre in the right vicinity. 8 Q So Im going to put up, if I could, Dr. Mullin, Debtors Is that part of the information that you

9 Demonstrative D-44.

10 used to do this calculation? 11 A Correct. So part of it is I didnt have the ability to

12 rely on the actual payments of companies in the tort system in 13 the past. I dont have directly observable to me the total I know the total payments of

14 recoveries of any given claimant.

15 given defendants, but I never see or rarely see, at least, the 16 total recovery of a given claimant. So I took advantage of

17 people who do get to observe that data. 18 So the first one here is really a quote from a

19 publication by Joe Rice and Ron Motley, two of the more 20 prominent plaintiff attorneys during that period, discussing 21 how the bankruptcies up through about 1992 had affected the 22 tort system. 23 Q And this is a -- Im sorry. I was just going to say this

24 is a 1993 publication, is that right? 25 A Correct. But its really confirming what Ive observed in

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Mullin - Contd Direct/Evert 1 other places, but its really confirming that theyre saying 2 one-half to three-quarters of, in their terms as original 3 liability share, you know, have gone into bankruptcy. 4 have Johns Manville in that, you know.

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Now they

It said this is

5 Celotex, Eagle Picher, its these older defendants that went 6 bankrupt a while ago and it goes on to say these bankruptcy 7 filings have increased costs substantially, increased 8 significant -- you know, caused significant delays to 9 plaintiffs and increased greatly the financial pressures on the 10 remaining solvent defendants. I mean, its really just an

11 acknowledgment that this transfer is happening. 12 Q And did it -- and it gives an estimate of that transfer,

13 is that right? 14 A Well, its telling us that one-half to three-quarters left

15 the system and at least in joint and several jurisdictions 16 where the last defendant standing can be subject to the full 17 damages at trial, theres -- you would expect in a joint and 18 several framework for that to get transferred to the solvent 19 defendants to the degree that there arent trusts paying it. 20 mean, the Manville Trust had material sums of money. 21 few billion dollars. I

It had a

But it was really the only trust at that The other ones

22 point in time that was paying a material sum. 23 really werent.

Its very different from today where theres

24 tens of billions in the trusts that came out of the 25 bankruptcies from 2000 to 2002. These earlier companies, in

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1 general, didnt have trusts that were funded on that magnitude. 2 Q 3 A 4 Q Well, then you -- Im sorry. So it really is orphaned in that sense. And then you also reference comments of Dr. Peterson in

5 regard to the 2000 to 2002 bankruptcy? 6 A Correct. I mean, I said in my own experience Ive seen

7 that maybe on the order of three-quarters of the money has left 8 the tort system during the 2000 to 2002 bankruptcies. This was

9 just a quote from Dr. Peterson in I think his Western Asbestos 10 testimony where he indicated that, you know, almost all of the 11 money that was being paid to claimants at that point in time 12 had left and the burdens were shifted to the other remaining 13 defendants. So, you know, I dont have the data itself to rely

14 on, but this is the gist of what happened. 15 Q And, in particular, as to the debtors and their claims

16 essentially all rising from joint cement or joint compound 17 claims, did you also review data in regard to joint compound 18 manufacturers? 19 A I did. So, I mean, the principal document was this 1976

20 U.S.G. memorandum which is just laying out the relevant market 21 shares and showing that, you know, on the order of 50 percent 22 of the market the companies that were responsible for producing 23 that have gone through some type of reorganization, you know, 24 and so we know that at least on the joint compound side about 25 half left.

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Mullin - Contd Direct/Evert 1 Q And why was looking at joint compound manufacturers

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2 important? 3 A I mean, you have to be liable in the first place to get a I mean, the joint and several rules So

4 transfer of liability.

5 dont transfer liability from non -- to a non-liable party. 6 the joint compound defendants are going to be the ones that

7 most frequently overlap or are the co-defendants of the debtors 8 here since their principal product was joint compound. So its

9 going to be very common that when Bondex would be liable, so 10 would U.S.G. It may not be nearly as common that just because

11 Bondex is liable so is Owens Corning who is a pipe and block 12 manufacturer or Armstrong, another pipe and block company. So

13 the overlap in product space means these are the companies that 14 are going to be the most relevant for them. 15 Q And from this data that you were able to obtain, what did

16 you conclude in regard to the likely transfer of liability that 17 had occurred? 18 A This data is indicative of a very broad range. You know,

19 its really saying if I were to focus just on joint compound 20 maybe about half the market is left so you may see a doubling 21 of what they would need to pay. If you look at it

22 holistically, if half to three-quarters left previously and 23 then three-quarters left again of what was left over, youre 24 really saying about 90 percent of the market left. You know,

25 so youre saying somewhere between 50 to 90 percent likely has

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You know, thats not a dispositive number of whats

2 the exact effect on the debtors, but its indicative that this 3 effect is going to be quite large. 4 You know, to try to get a better answer, the

5 weighting between these two, I really went to the historical 6 claim files and the PIQ data and said, well, how much exposure 7 did the defendants allege -- Im sorry, the claimants -- allege 8 from these various types of parties. 9 exposure is from joint compounds? So how much of their

If it was all joint

10 compound, youd expect more of the doubling to be the right 11 answer. If almost all of their exposure is pipe and block

12 were outside of maybe Owens-Illinois and almost every pipe and 13 block company has gone bankrupt, youd expect that to be more 14 on the 90 percent end. 15 And so I could look at the actual alleged exposures

16 in terms of industry, occupation, you know, this persons an 17 insulator, that means theyre going to have a lot of pipe and 18 block, another person worked construction, theyre not going to 19 have the pipe and block, theyre going to have a different set. 20 I went through those exposure profiles and I kind of -- I 21 weighted it up. I said how much of the exposure is coming from

22 the areas where the bankruptcies were very pronounced and how 23 much is coming from the direct product space here. And when I

24 do that, in aggregate, based on who theyre paying, if you do 25 it on the historical you can actually observe the dollars on a

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Mullin - Contd Direct/Evert 1 claim by claim basis, its about 50/50. 2 weighted average of between 50 and 90. 3 about 70 percent. 4 Q 5 A So when you say its about 50/50, whats about 50/50? About half of the alleged -- when I go across the So you take that Youre coming in at

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6 claimants, about half the alleged exposures are really coming 7 on a duration basis from other joint compound type 8 co-defendants, that about half is coming from these more 9 industrial settings with -- where youd really expect the pipe 10 and block where the bankruptcies were very pronounced. 11 Q And did the PIQs also give you information about what the

12 current claimants are doing in regard to making bankruptcy 13 trust claims? 14 A It did. So the PIQs show me that on average the claimants

15 are naming, like I said, about 50 companies in the tort system, 16 but theyre also naming, you know, 15, 16 of these trusts by 17 naming -- filing claims in around 15 to 16 of the trusts. 18 Q So all of that adds up, I presume, Dr. Mullin, and you

19 having an opinion as to a forecast or estimate as to the claims 20 against the debtors under these various assumptions, is that 21 right? 22 A Thats right. I mean, we skipped the third one because I

23 did also look at the Texas, theres really what would -- from 24 an econometric standpoint a natural experiment there. 25 a tort reform. Theres

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Mullin - Contd Direct/Evert 1 Q 2 A We sure did. My apologies.

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And thats really another one of the ways I came at it. Texas -- the Texas Legislature

3 It has its own potential flaws.

4 passed a bill that moved the threshold for a defendant to be 5 held joint and severally liable from a 15 percent share to a 50 6 percent share. So if the defendant today is responsible for

7 more than 50 percent, it can be held liable for all of it. 8 Q If a jury finds a defendant liable for more than 50

9 percent, then they are jointly and severally liable, is that -10 A 11 Q 12 Correct. Or as -MR. SHEPPARD: Objection, Your Honor. Hes not

13 qualified as a legal expert. 14 15 Q MR. EVERT: Okay.

Did you review the change in Texas tort reform so that you

16 could perform this analysis? 17 A 18 Q Yes. And what did the change in Texas tort reform that occurred

19 provide you in terms of your analysis? 20 A It provides an instance where you can look at claims. I

21 said its a natural experiment as an econometrician would view 22 it. You have claims that are filed immediately before the

23 reform and you have claims that are filed immediately after the 24 reform and you can look at how the settlements differ for those 25 two groups and the difference in the settlements presumably is

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1 attributable to the reform if youre in a close enough window 2 on both sides. And this is -- its referred to a, you know,

3 its just a before-after estimator is actually the name that 4 its called in econometrics. Its very tricky that way. But

5 youre looking right before the reform and right after and you 6 compare the differences and see how much did it change and 7 thats the impact of the reform on the variable youre 8 observing. 9 Q And what did the data tell you about the effect of the

10 change? 11 A It tells you that theres about a fourfold difference from

12 before the reform versus after, different aspects of the 13 reform. 14 werent. Some aspects of it were applied retroactively, others So if you look at right after for the ones that had

15 the parts that carried in both directions, you get an effect of 16 about 2X. So its telling you that you have at least a twofold

17 impact, you might have as much of a fourfold impact, and so you 18 dont really know where it is in that range. 19 difficulty of using this natural experiment. 20 The other difficulty is its not moving from pure Thats not the And thats one

21 several liability to pure joint and several. 22 transition.

You know, as I understand the change, its moving

23 from a 15 percent threshold to a 50 percent threshold which is 24 not the same as moving from zero to 100. So its a partial You know,

25 movement and it has an effect of two to fourfold.

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1 and thats -- so this is very consistent, though, with what I 2 saw elsewhere. You know, so in general it looks like the

3 effects, whether you want to call it one-third, two-thirds, I 4 used 70 percent, 30 percent, but its -- this evidence 5 indicates its in that neighborhood. 6 Q 7 A 8 Q And it was consistent with your other data? Correct. So did all of these lead you to conclusions about the

9 debtors -- your estimate of the debtors asbestos liabilities? 10 A It did. I said, as I reviewed before, theres about $700

11 million is if youd been in the tort system, what would have 12 been settlements had they individually evaluated the claims. 13 Its about 30 million in the SBND claims, 70 million for the 14 pending and about 600 million for the futures. 15 Q All right. Let me go through this one slowly. Remind us what SBND is. So this is

16 Debtors Demonstrative D-46. 17 A 18 Q 19 20 21 Q

Well, I was -- SBND is settled but not documented. Okay. UNIDENTIFIED SPEAKER: THE WITNESS: Im sorry?

Settled but not documented.

And I see a consistent number of $30 million under the

22 column of settled but not documented and can you tell me why 23 that is? 24 A So in round numbers debtors counsel instructed me that

25 they viewed $30 million, approximately $30 million of those

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1 settlements as liquidated, so they were contract claims and as 2 such theyre just 30 million. Theres nothing to estimate. So

3 thats really just a number Im taking based on the contracts 4 that are in place. 5 Q So these are claims that the debtors agreed to settle

6 before the petition date, but had not been paid or consummated, 7 is that correct? 8 A Well, at least they hadnt been paid. I dont -- I mean, This is

9 I dont know all the details in terms of the process.

10 the 30 million that debtors counsel instructed me that they 11 viewed as already being a contract liability for which I didnt 12 need to estimate any value. 13 Q Okay. So under any of the theories, its the same $30

14 million? 15 A 16 Q Correct. All right. Now on the 100 percent individual evaluation,

17 what does that refer to? 18 A Its saying if the debtors took discovery at all the

19 claims, evaluated each claim on its own merits, we would expect 20 the pending claims to receive approximately $70 million. 21 Q 22 A 23 Q In the tort system? In the tort system. And do you have an opinion about what the future claims

24 would receive in the tort system under that assumption? 25 A Thats the $600 million.

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Mullin - Contd Direct/Evert 1 Q 2 A 3 Q For a total of $700 million nominal, is that correct? Correct. All right. And then TCMS I think stands for the

214

4 transaction cost model of settlement, so can you just remind us 5 what that assumption involves? 6 A Right. So that is doing the thought experiment of saying

7 if all these claims were taken to verdict, so if there werent 8 transaction costs really, what portion of it is associated with 9 damages, whats the real liability. 10 us is its about two-thirds. And what that model showed

You know, I mean, it has the more Under

11 precise numbers, but the pending claims are 45 million.

12 that in round numbers the future claims are 390 coming out at 13 465. I mean, the previous slide was 463 and change. Im --

14 were not that precise, so Ive rounded these off. 15 Q 16 A 17 Q So, again, rounded to $465 million nominal? Correct. And then several share, remind us again, I know we just

18 talked about it, but just to be clear what that means? 19 A So several share is now saying if all the defendants were

20 in the tort system with the debtor, so if we looked more like 21 the 1990s. You know, and its really even going back further But if were adding

22 because were adding Johns Manville even.

23 all those defendants back into the tort system, what would the 24 debtors experience be in terms of actual liability and its 25 coming in at about 160 million.

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Mullin - Contd Direct/Evert 1 Q 2 A 3 Q And, again, thats a nominal number? Correct.

215

Now, Dr. Mullin, in coming to these conclusions, did you

4 take into account inflation? 5 A I did. I mean, these numbers dont reflect any adjustment

6 per se, but I did take it into account. 7 Q Okay. And Im hoping that Debtors Demonstrative D-47

8 will help you explain why the number is taken into account but 9 make no adjustment. 10 A Right. So I put up, you know, three different rows on

11 this, but theres not that much disagreement over about whats 12 a reasonable inflation rate for the U.S. economy across the 13 various experts. 14 percent. I mean, I view it as around two and a half

I think thats very similar to what Dr. Peterson, Dr. Vasquez was at

15 which is the LAS, is at two and a half. 16 2.1.

So theres not that much disagreement in terms of that

17 over the long haul theres going to be inflation and that needs 18 to be taken into account in some form. 19 Where we start to go in different directions is

20 really what besides inflation do we need to take into account. 21 So one of the things thats happening and probably the one 22 thats the most important on this to mention is that with the 23 passage of time the average claimant is getting older every 24 year. So were seeing that since these are historical

25 exposures that have ended, there arent new people getting

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Mullin - Contd Direct/Evert 1 exposure. You know, with each passing year the exposed

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2 population gets a year older and the people getting diagnosed 3 with mesothelioma get a little bit older, too. We saw earlier

4 that older claimants dont receive as much money and thats for 5 lots of different reasons, but as we looked, whether you do it 6 by verdicts, you can look at it by settlement amounts, older 7 claimants receive less money. 8 9 that. So both myself and Dr. Vasquez did an analysis of We actually did a very similar analysis of seeing whats We get fairly

10 the impact of age on settlement amounts. 11 comparable results.

We both did it in a regression framework

12 where youre running a regression of settlement amount on age 13 and saying whats the impact and then you take from the 14 epidemiology how old are future claimants going to be. 15 when you do that, it offsets inflation partially. 16 that its about a one percentage point offset. 17 it at about one and a quarter percent. And

I estimate

Dr. Vasquez put

But both of us are

18 accounting for the fact that as claimants get older, on average 19 they receive less. 20 And so thats one aspect.

Theres a second aspect where Im the only party at

21 the moment that took it into account which is the impact of 22 aging on the pay rate. And I did the exact same econometric

23 analysis that both Dr. Vasquez and I did on average settlement 24 amount. 25 rate. I just replaced average settlement amount with pay

And when you do that, you see that as claimants get

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Mullin - Contd Direct/Evert 1 older, theyre less likely to be paid. 2 be dismissed. 3 point effect.

217

Theyre more likely to

You know, and that has about a two percentage So when I look at those two effects, I see two

4 and a half percent increase due to inflation, something thats, 5 you know, two and a half to three percent decrease due to 6 aging, those are roughly offsetting. So thats why at the end I could

7 I didnt make any adjustment one way or the other.

8 have adjusted up two and a half percent, then down 2.9 percent 9 and end up at roughly the same number, but its that I had 10 these two offsetting effects. 11 Q Did the data give you any indication of why aging

12 plaintiffs have a lower pay rate? 13 A You can draw inferences. Its probably as much a But this is an

14 hypothesis that is the data confirming it.

15 effect you see in some defendants and not in others and its 16 more that that gives me a good hypothesis for whats going on 17 which is product identification works very differently for 18 Bondex in the tort system than it did for somebody like an 19 Owens Corning or a Johns Manville. If a person has

20 occupational exposure to asbestos, the plaintiff law firms have 21 very good databases. Theyre very knowledgeable about which

22 companys products were at different major work sites in the 23 United States. So the claimant can come to the plaintiff

24 attorney, have no recollection of what they were exposed to at 25 the XYZ company, but the plaintiff attorney knows because

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Mullin - Contd Direct/Evert 1 theyve litigated a lot of cases from that site before. 2 persons memory doesnt come into play. 3

218 So the

Theres another set of defendants where the plaintiff You know, they either recall being So you can think of this

4 law firm cant help them.

5 exposed to the product or they dont. 6 as typical DIY type.

So any of the claimants that are in the

7 do-it-yourself type space tend to have this type of an outcome. 8 So whether its a shade tree mechanic, the shade tree mechanic 9 has to know what brand of brakes he was using. 10 help him. 11 Hes got be able to remember it. Similarly, you know, what joint compound you used Nobody else can

12 when you remodeled your basement is something that the claimant 13 or next of kin or somebody needs to be able to remember. 14 recollection comes into play. So

You know, unfortunately, older

15 people dont have as good of recollections about events from 16 40, 50, 60 years ago. I mean, even young people dont have So

17 good recollections of events from 10, 20, 30 years ago.

18 its just given that this recollection comes into play, thats 19 one of the reasons you typically see this type of an outcome. 20 But really regardless of why it happens, its an empirical fact 21 in the debtors data that you have these two effects. Older

22 claimants are less likely to get paid and when they do get paid 23 on average they get paid less. 24 Q That was actually my next question. So regardless of the

25 hypothesis, this is the result of a regression of the debtors

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Mullin - Contd Direct/Evert 1 data, is that right? 2 A 3 Q Correct.

219

So, Dr. Mullin, did we then ask you to calculate various

4 net present values of the nominal numbers that you have 5 testified here to today? 6 A 7 Q You did. I hope that Slide D-48 is going to be illustrative. You

8 will see this is the best slide because it has my handwriting 9 on it where Ive scratched out one legend and put in another to 10 make it match with the previous slide. 11 fault. Im sure that wasnt my

It had to be somebody elses and Ill try to figure out So you previously testified to the 100

12 who that was later.

13 percent individual evaluation resulting in a nominal estimate 14 of $700 million, is that right? 15 A 16 Q Correct. And this slide represents, I presume, discount rates that

17 we asked you to apply, is that correct? 18 A Correct. I was just asked to apply these three different

19 discount rates. 20 Q And the -- just to be clear and you -- because of the

21 Nicholson incidence model that you used, the claims come in 22 over time at a certain rate that can be calculated, is that 23 effectively right? 24 A Correct. I mean, all of my underlying nominal forecasts

25 are actually an amount -- theres an amount for the pending

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Mullin - Contd Direct/Evert 1 which I dont apply any discounting to and the future claims 2 theres an estimate for fiscal year 2011. Theres another

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3 estimate for fiscal year 2012 and I run that all the way out to 4 2060. 5 Q And did you use Nicholson? I know there are other curves

6 that I think are available, as well? 7 A When I discuss more at length in my report, but theres Theres at least three different curves out

8 really three.

9 there that I use interchangeably in this analysis largely which 10 is theres the Nicholson curve based on his 1982 publication. 11 Theres a model thats referred to as the KPMG or sometimes the 12 KPMG-Nicholson model which was really done by -- Dr. Vasquez 13 was involved in that, my partner Dr. Bates was involved in 14 that. They worked with Dr. Nicholson. And it was intended to The Nicholson forecast,

15 improve the original Nicholson paper.

16 although very accurate in terms of total counts, had people 17 younger than what was being observed. So although it was

18 getting the counts right, it had the age of the people with 19 mesothelioma wrong. 20 So it was trying to fix that.

And then in conjunction with Dr. Bates, Ive

21 continued to work on incorporating kind of the 20 years of 22 literature thats come in since then that would influence how 23 that model works. But whether you use the current Bates White

24 version of that, you use the KPMG version of that, or you use 25 the original Nicholson, it creates about a five percentage

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Mullin - Contd Direct/Evert 1 point difference. So its not a material distinction. It

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2 really doesnt matter which of those three curves you use, 3 youre going to tell the same story. 4 Q Either way it presents you with a claiming rate that comes

5 in over a certain period of time that you can then map to a 6 discount rate, is that right? 7 A Correct. All of them give you a forecast of claims by

8 year in the future and then you can discount those claims back. 9 Q 10 A And what discount rates did we ask you to use? You asked me to use 8.2 percent, 5.5 percent and 4.35 for

11 the sake of this demonstrative. 12 Q 13 A 14 Q Three point four-five? Three point -- I -- if I didnt say that, I meant to. Okay. And this is different than the number that you used

15 in your report, is that right? 16 A Well, in my report in the body of the report as a In the appendices to

17 placeholder I used 6 percent throughout.

18 the report, I calculated everything by percentage points at 4, 19 5, 6, 7, 8 and 9 percent, I believe, in the appendices. 20 Q And just for the record, Dr. Mullin, can you give us your

21 opinion based on all your analyses of what the $700 million 22 nominal estimate of the current and future claims had they all 23 been individually evaluated comes out to at the respective 24 present values? 25 A At 8.2 percent, that comes out to $445 million and thats

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Mullin - Contd Direct/Evert 1 to be clear for 2000 -- its -- Im doing it by fiscal year. 2 So its fiscal year 2011. That year gets half a year of

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3 discounting because on average that would have occurred six 4 months after the petition date. 5 Q 6 A Okay. Similarly, fiscal year 2012, claims filed in fiscal year

7 2012 are valued in that year and then get a year and a half of 8 discounting. 9 Q 10 A 11 Q 12 A 13 Q Okay. And how about at 5.5 percent?

At 5.5, the number increases to $510 million. And at 3.5 percent? It increases once again to $575 million. And Id ask you to give me the similar numbers if you

14 would for the $465 million estimate that you have provided the 15 Court under the transaction cost model of settlement where the 16 payments that are not related to damages and liability have 17 been taken out. 18 A So its consistently about two-thirds of the other one.

19 So its at 8.2 percent, its $300 million, at 5.5 percent that 20 goes up to $340 million, and at 3.45 percent discounting that 21 goes up to $385 million. 22 Q And finally, Dr. Mullin, if you would tell me your opinion

23 as to the net present value of the $160 million nominal 24 liability several share of the liability of the debtors that 25 you have estimated?

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Mullin - Contd Direct/Evert 1 A At 8.2 percent, that comes out to $110 million, 5.5

223

2 percent it increases to $125 million, and finally at 3.45 3 percent it further increases to $135 million. 4 Q Thank you. Now, Dr. Mullin, did we also ask you to try to

5 partition those liabilities into three distinct eras? 6 A 7 Q Yes. And if you would look at Demonstrative Exhibit D-49 and if

8 you would explain for the Court those three eras? 9 A Well, I was asked to look at the aggregate liability and

10 put it into a what Ive labeled here a Reardon, an SPHC era, 11 and a Bondex era which corresponds to the points in time when 12 each of those corporate entities was really responsible for 13 producing and selling the products from which the liability 14 derives. 15 Q So prior to 1966, Reardon Company was selling the

16 products, is that right? 17 A 18 Q 19 A 20 Q Thats my understanding. And then you called that the Reardon era? Correct. And then after the purchase of Reardon by what is now

21 known as Specialty Products Holding Corp. in 1966 began the 22 what you call the SPHC era, is that correct? 23 A 24 Q Correct. And that lasted until the formation of Bondex

25 International Inc. in 1972, is that correct?

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Mullin - Contd Direct/Evert 1 A 2 Q Correct.

224

And then after the formation of Bondex International Inc.

3 in 1972, you called that the Bondex era, is that correct? 4 A 5 Q Yes. Now lets talk about how you went about apportioning those So whats the first thing that you did? I mean, I face So

6 liabilities. 7 A

Well, this is a common problem in my work.

8 this exact problem all the time in coverage litigation.

9 its very common for one company to have multiple predecessors 10 get named in the tort system and settle on behalf of all of its 11 predecessor entities. But each of those predecessor entities So although they may have paid

12 has its own insurance coverage.

13 $100,000 to settle a claim, if they had three predecessor 14 entities each with their own distinct insurance coverage, they 15 cant just put the 100,000 onto any one of those. They have to

16 come up with a reliable partitioning of the 100,000 across 17 their three predecessors before they can allocate it to their 18 insurance coverage. So this is something I do on a regular

19 basis, not in bankruptcy in that portion of my work, but in the 20 coverage litigation that I do. And to do that here, the first

21 thing is I looked at the actual allegations, which era of 22 exposure is the person alleging caused their disease. 23 Q So Im going to show you, Dr. Mullin, Debtors

24 Demonstrative D-50 and ask you to please tell the Court what 25 that represents.

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Mullin - Contd Direct/Evert 1 A All right.

225

So if the first row had been 100 percent, this So the first row is how

2 job would have been really easy.

3 many -- how much of the money was paid to claimants who alleged 4 exposure exclusively during the Reardon era. 5 exposure predates the acquisition by SPHC. So all their

Thats a claim

6 thats fairly easy to say, okay, thats derivative of the 7 Reardon era. Thats the only time period in which they had

8 exposure and thats about 6 percent of the payments. 9 Q So let me just -- before you go on, let me just stop you

10 there because I think it will help understand the whole chart. 11 So 6.1 percent of the claimants -- claimants or payments? 12 A This is -- so this is historical -- these would be

13 historical claimants, so were actually distributing the money 14 here -15 Q 16 A 17 Q Okay. -- not counts of claims. Okay. So 6.1 percent of the historical payments were made

18 to claimants who only alleged exposure prior to 1966, is that 19 right? 20 A 21 Q 22 A Correct. Go ahead. And then reading across just under 8 percent, 7.7 percent

23 of the money was paid to claimants who alleged exposure 24 exclusively during the SPHC era. So they dont have any And similarly,

25 exposure during the Reardon or the Bondex era.

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Mullin - Contd Direct/Evert

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1 8.6 percent alleged exposure all post the 1972 date, so those 2 are exclusively Bondex era claims. 3 of the claims. Now thats about a quarter I

We have 22 and a half percent of the claims.

4 really dont need to do any other analysis.

We know which era

5 their exposure is in and partitioning liability or the settled 6 payments is relatively straightforward. 7 Q And the data for this came from your samples of the

8 historical claims files, is that right? 9 A Correct. So this is based on the sample of 1,000 claim

10 files and then that sample we have sampling weights that make 11 it representative of the population. So we apply those weights

12 and that gives us back an estimate for the whole population 13 based on the sample. 14 Q And the bottom three lines of this chart, I presume,

15 represent where there are mixed exposure claims? 16 A Correct. So 7 percent of the claimants if we look at Row So

17 2 allege exposure that spans the Reardon and the SPHC era.

18 theyre getting exposure during both of those, but none during 19 Bondex. So its easy to conclude for that 7 percent none of

20 its attributable to Bondex era, but we still need to then say, 21 well, of that 7 percent, how much is attributable to the use 22 during the Reardon era versus the SPHC. And then similarly as

23 we read down 22.8 percent allege exposure that spans the 24 SPHC/Bondex era and almost 50 percent, just under that, span 25 all three eras.

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Mullin - Contd Direct/Evert 1 Q And how did you go about decomposing these combined

227

2 exposure eras? 3 A I used really the exact same methods that I use when Im Typically its done based So if a

4 doing this in coverage litigation.

5 on the amount of alleged exposure in each period.

6 claimant alleges an equal amount of exposure in two periods, 7 they each get equal weight. I -- if this was two predecessor

8 companies, if they were alleging equal exposure to the two 9 predecessor companies in a coverage setting, youd split the 10 payment equally between the two. 11 In contrast, if theyre alleging a day of exposure in

12 the Reardon era and five years of exposure in the SPHC era, 13 almost 100 percent of it would be assigned to the SPHC era and 14 a very tiny fraction would go into the Reardon era. So the

15 historical claim files gave me, you know, the alleged durations 16 of exposure and so I partitioned it proportional to the alleged 17 exposure. 18 Q So if you look at Debtors Demonstrative D-51, is that the

19 product of those calculations? 20 A Correct. So if we were to go -- the first row is The second row,

21 identical.

There was no partitioning needed.

22 as we saw before, 7 percent of the money was paid to claimants 23 who alleged exposure both in the Reardon and SPHC era and if we 24 look at how that splits, they actually allege more exposure 25 during the Reardon era than the SPHC era and that splits

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Mullin - Contd Direct/Evert 1 approximately 4.4 percent to 2.6 percent. 2 been done the whole way down. And that same has

228

You can look at the bottom row

3 of the ones that allege exposure in all three eras, its pretty 4 evenly split. And those numbers are -- theyre not exactly

5 equal, but theyre close to each other. 6 Q Now those are the historical claims or the historical

7 payments and the claims associated with them and your analysis 8 of those. 9 PIQs? 10 A Right. What I really didnt -- this is being used as a Did you do a similar analysis to the -- as to the

11 foundation for doing a forecast because the history has already 12 happened. So for the PIQs I can repeat this exercise. The PIQs have alleged exposures. I cant

13 do it on dollars.

They dont

14 have settlement amounts yet.

So this is based on looking at

15 all the claims, where do they allege their exposure came from. 16 And, again, we get about 25 percent alleging exposure 17 exclusively during a single era and about three-quarters have 18 exposure that spans either two or three of the time periods. 19 And when we look at the pending claims, we see really what I 20 was expecting to see which is that as you move forward in time 21 more of the claimants are going to have Bondex era exposure and 22 eventually fewer of them are going to have Reardon era exposure 23 because as we go to -- as we move forward in time, were going 24 to get claimants disproportionately who were born more recently 25 and the more recently you were born, the harder it is to have

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Mullin - Contd Direct/Evert

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1 Reardon exposure, the easier it is to have SPHC or subsequently 2 Bondex exposure. 3 Q Are you telling us were all getting older, Dr. Mullin, is

4 that essentially what youre saying? 5 A 6 Q Unfortunately, thats true. And so this analysis of the PIQs is essentially the same

7 exercise that you went through for the historical claims except 8 this is claims not dollars? 9 A 10 Q Correct. All right. So how do you then take that and estimate for

11 the future? 12 A Well, for the future clearly I dont have any Theres not the equivalent of But we do

13 characteristics of the claims. 14 the PIQs.

We dont know their exposure histories.

15 know that somebody born in 1968 who eventually develops 16 mesothelioma cant have any exposure in the Reardon era. 17 were born after that era ended. They

So we know as we move forward

18 through time these exposure profiles are going to shift 19 forward. 20 era. 21 The way I modeled that is I have about 2,000 PIQ I have about 1,250 So were going to see less Reardon era, more Bondex

22 responses that give me an exposure history. 23 historical claim files.

When I first did this I had the 900.

24 So I had about 900, 1,000 from my own sample, so had a sample 25 of close to 3,000 claimants and their exposure history. From

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Mullin - Contd Direct/Evert 1 that, I could figure out for each birth cohort.

230 So the people

2 born in 1930, how much Reardon exposure did they have, how much 3 SPHC exposure, how much Bondex? Of the people born in 1931,

4 how does that change and keep doing that all the way up to 5 people born in 1975, 1980. Now, clearly, those are all going

6 to be Bondex by the time I get there, but I can do this by 7 birth cohort and move forward. 8 And so I created an estimate for each birth cohort

9 and then the incidence models, whether you use Nicholson, KPMG, 10 it really doesnt matter which one, they all tell you of the 11 future claims that are going to get mesothelioma, which birth 12 cohorts are they coming from. So the same model that gave me a

13 count of future claims tells me the age of those claims which 14 is the same thing as when they were born. And so then I know

15 how its going to age and how this is going to -- excuse me -16 going to progress forward through time. And so I applied those

17 birth cohort estimates to the estimates of how many people are 18 going to get mesothelioma in every future year and that gives 19 you how this breaks down. 20 Q All right. Let me just make sure I understand because I When you say

21 want to be clear about the way the data looks.

22 that you would take -- measure by exposure years and see what 23 period they spanned, typically are you looking at a claimant 24 that says I used Bondex joint compound from 1956 to 1966? 25 mean, is it that sort of data? I

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Mullin - Contd Direct/Evert 1 A The specific testimony really varies.

231

So when you look at

2 the historical claims, theres those that allege they used it 3 on a regular basis. So they may have used it allegedly doing

4 residential construction or they were the handyman in the 5 neighborhood and Bondex is the product. So literally they were

6 using it on a regular basis week in and week out over 20 years. 7 Theres some of that. 8 The more common testimony is somebody that says I did

9 my own remodeling work at home, I patched walls, they did 10 projects over the course of 20, 30 years, sporadically they did 11 projects and on some of those projects they used Bondex. And

12 its very hard to know in any given year whether or not they 13 did, but theyre saying I used it on and off over a 30-year 14 period. And thats what a lot of those ones that span all The testimony is from 1950 to 1980 I used

15 three periods are.

16 it on and off over that period. 17 Q So thats why we see a very large percentage of the claims

18 that cover all eras? 19 A Right. Its not that they were using it day in and day They just say I used it on and off as I did

20 out for 30 years.

21 various home repair projects. 22 Q I see. So did all of these calculations then allow you to

23 estimate the allocation of the liabilities and the opinions 24 that you expressed earlier across the various eras? 25 A Thats right. So in the demonstrative youve just put up

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Mullin - Contd Direct/Evert 1 is really illustrating that. 2 3 A MR. EVERT: D-54, Your Honor.

232

So as wed expect as we move forward in time, the number The number of people

4 of people with Bondex era exposure grows. 5 with Reardon era exposure declines. 6 fairly stable.

The SPHC actually stays Theres some

We -- it kind of has two effects.

7 people aging into it.

Theres other people aging out of it. But it shows us that the future

8 So it says the most stable.

9 claims are less likely to have Reardon era exposure which makes 10 sense because the people that had that are older so theyre 11 going to die of general mortality sooner. And the people with

12 the Bondex era exposure in general are younger, so theyre 13 going to be a larger percentage of the future claims. 14 Q And so to be clear on Demonstrative D-54, the pending

15 category is the result of the analysis of the data in the PIQs, 16 is that right? 17 A 18 Q Correct. And the future category is a result of the birth cohort

19 analyses that you just described a moment ago? 20 A Correct, which is rooted in both the PIQ data and the I took advantage of all about 3,000

21 historical claim files.

22 claimants for whom I could perform that analysis. 23 Q And how would these percentages be applied to the

24 estimates that you told us about just a few minutes ago? 25 A From my perspective, all this tells me is how much of the

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Mullin - Contd Direct/Evert 1 liability comes from each of these eras.

233

You know, to me its

2 not -- I dont have an opinion one way or another whos 3 responsible for them. So this is just if you want to partition

4 it, you know, it allows you to say if Bondex is exclusively 5 responsible for the Bondex era, under that ruling then about 6 half the money sits only in the Bondex era. 7 Q 8 A So -- Im sorry. I said, theres -- to me thats much more of a legal I can answer this question of how much liability Im agnostic as to whos But --

9 question.

10 comes from each of these eras. 11 responsible for it. 12 Q

Well, Im inartfully asking a math question.

So in order

13 to apply these percentages to your previous opinions, it would 14 merely be multiplication? 15 A 16 Q Yes. So that is to say that if 48.6 percent times the number

17 that is -- that you gave an opinion about in terms of future 18 liabilities could be applied to Bondex under this analysis? 19 A Well, it really means that 48 percent, if we want to make

20 the math easy for a second, if we think of that as 50, if we 21 were to say 50 percent of the liability is derivative of the 22 pending and future liabilities, derivative of the manufacture 23 and sales during the Bondex era. So if you want to know how

24 much money that is in the estimate that was $700 million 25 nominal, it would say, oh, thats -- I think that was about 600

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Mullin - Contd Direct/Evert 1 and its different NPVs depending on the interest rate.

234 These

2 are net present value calculations, but about 50 percent of the 3 net present value of that liability is associated with the 4 Bondex era. You know, about 30 percent is associated with the

5 SPHC era and about 20 percent is associated with the Reardon 6 era. 7 Q I did want to ask one thing. Dr. Mullin, we heard a lot

8 yesterday about sales by Bondex of joint compound in the late 9 1970s and liability documents associated with that. Did you

10 take into account at all any of the questions about whether 11 there was a better liability claim later or a weaker liability 12 claim earlier or is that in any of your calculations? 13 A No. I did this purely based on the duration of alleged

14 exposure. 15 MR. EVERT: Okay. Now I have one more area to cover

16 with Dr. Mullin, Your Honor, which has to do with his 17 supplemental report which we have marked as Demonstrative D-56, 18 if I may approach? 19 20 21 22 23 24 Q THE COURT: MR. EVERT: Yes. Thank you.

Anybody need a copy? Supplemental? Here, heres one.

UNIDENTIFIED ATTORNEY: MR. EVERT: Yeah.

You got it?

(Attorney discussion) Dr. Mullin, you authored a supplemental report in this

25 case recently, I think, December 27, is that correct?

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Mullin - Contd Direct/Evert 1 A 2 Q My wife appreciated that date. And tell me, if you would, what was the subject of that

235

3 report? 4 A It was fairly narrow. I mean, it was really looking at

5 the information we received about a week earlier, something on 6 that order, from the THAN Trust. 7 Q 8 A And so what did you receive in terms of the THAN Trust? Well, we sent a list of approximately 2,000 claimants in

9 terms of the personal identifying information for 2,000 10 distinct claimants. The THAN Trust returned the claimants that So they had a criteria for If it

11 they considered a match to those.

12 determining whether or not it was the same individual.

13 was, they returned a limited set of data about that individual 14 that had been submitted to the THAN Trust. 15 Q And did you also review information in regard to the

16 ballots that were cast in the THAN Trust? 17 A 18 Yes, prior to that we had the ballots from the THAN Trust. MR. EVERT: Your Honor, at this time Id like to

19 offer Debtors Exhibits 25 which is the THAN disclosure 20 statement, Debtors Exhibit 80 which is the data that we 21 received from THAN in response to our subpoena, Debtors 83 22 which is the trust distribution process for the THAN Trust and 23 Debtors 84 which are the THAN ballots. 24 theres -25 MR. SHEPPARD: No objection, Your Honor. And I dont believe

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Mullin - Contd Direct/Evert 1 2 UNIDENTIFIED ATTORNEY: THE COURT: All right. No objection. Exhibits 25, 80, 83 and 84

236

3 are admitted. 4 5 Q MR. EVERT: Thank you, Your Honor.

And so what did you do when you got the data from the THAN

6 Trust and from the ballots? 7 A Really the first thing we did was we just merged the three

8 of them together so wed have one record per individual 9 claimant that contained their information from the PIQs. 10 were all PIQ responses. These

The information from the ballot if

11 they matched the ballots and if they voted it had that 12 information. And it also linked to it the information that And then really we just did

13 returned from the THAN Trust.

14 tabulations of that data at that point initially. 15 Q Okay. Well, I put up, Dr. Mullin, on the overhead ELMO

16 high tech thing Exhibit 1 from your supplemental report and is 17 that the total 1,476 filed in the first column, is that what 18 you referred to earlier? 19 A Thats the, correct, thats the -- we sent a list of I Im probably

20 think technically 1,199 distinct individuals.

21 going to call that 2,000 a bit, but we sent that list of about 22 2,000 claimants and Verus, the administrator of the trust, sent 23 us back 1,476 matches to that. They said we have records of

24 1,476 individuals out of that list of about 2,000. 25 MR. EVERT: Excuse me, Your Honor.

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Mullin - Contd Direct/Evert 1 Q Im sorry, Dr. Mullin.

237

So that indicated that roughly --

2 so what percentage of claims information did you get back? 3 A I mean, in round numbers, thats 75. I think its about

4 1,500 out of 2,000.

I have the exact number in here somewhere.

5 I think its -- but its just under 75 percent. 6 Q And how did that compare to the number of reported THAN

7 claims in the PIQs? 8 A I mean, based on, you know, my review of the PIQ data,

9 there was about 55 percent of the PIQs indicated the THAN Trust 10 claim as opposed to the 74 percent that matched to the THAN 11 Trust. 12 Q So there was an underreporting in the PIQs of the THAN

13 Trust claims, is that correct? 14 A Well, I mean, there was an underreporting. I mean, there

15 was one question I wanted to look at before then, but theres 16 definitely -- theres a number of PIQ responses that dont 17 reflect the THAN Trust filing that the THAN Trust provided us. 18 Q Right. And so there was an underreporting, but you wanted

19 to see if you could figure out the potential reason for the 20 underreporting, is that right? 21 A Correct. I mean, theres -- its possible that a person

22 submitted their PIQ and six months later filed a claim against 23 the THAN Trust. 24 Q 25 A Right. So thats not an underreporting. It does mean they have a

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1 THAN Trust claim, but they didnt file it at the time they gave 2 us the PIQ. 3 Q 4 A 5 Q 6 A 7 Q 8 A So --

Fair enough. Theres semantics there, but -Okay. Yeah. So what did you do to try to investigate that? Well, to explore that I looked at individuals who also had Fair enough. I stand corrected.

9 voted in the THAN Trust because the voting in the THAN Trust 10 predates the petition date by a substantial period of time. 11 need to -- so the voting deadline was November 1st of 2008. 12 The petition date here is in 2010. 13 later in time. The PIQ responses are even I

So theres -- if somebody voted in the THAN

14 Trust, they were aware that they had a THAN claim well before 15 the PIQs were due. And when we look at that, we get about an So the underreporting rates

16 11 percent underreporting.

17 somewhere in the range of 11 to 25 percent depending on the 18 exact timing of when the filings against the THAN Trust were 19 made and thats not one of the data fields that we received 20 back from Verus, so we werent told what the filing date was. 21 So I cant do the direct comparison on the data thats 22 available to me. I can only draw inference based on who voted. Its 25 percent as it

23 Its 11 percent based on the votings.

24 stands today and some portion of that could have been filings 25 post the submission of the PIQs against the THAN Trust.

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Mullin - Contd Direct/Evert 1 Q Okay.

239

Now Ill return to Exhibit 1 of your supplemental

2 report which is a chart entitled number of filed and paid 3 claims against the THAN Trust. 4 represents? 5 A So to read across 669 of those the trust indicates have Of those, theres two different payment rates that Theres a group that were paid at 100 Can you tell us what that

6 been paid.

7 were a potential.

8 percent of the liquidated values and theres a group thats 9 being paid at 30 percent of the liquidated values. The trust

10 indicated in the production which payment rate an individual 11 was receiving. 12 claims. So this just tabulates from there how many

Theres 365 claims that were paid at the 100 percent

13 payment rate or payment percentage and theres about 304 claims 14 that were paid at the 30 percent payment percentage. 15 Q 16 A And -And then I split that between the SPND claims and pending

17 claims. 18 Q Okay. Now did you investigate from the data you had

19 available about whether or not the paid claims identified joint 20 compound as one of the reasons for the THAN payment? 21 A 22 Q 23 A I did. And what did you find? We looked at, at least for the recently filed claims,

24 youre seeing that about 90 percent, so I think its 226 thats 25 really whats up here in the demonstrative now, 226 of the 252

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Mullin - Contd Direct/Evert 1 claims from 2012 are indicating joint compound. Thats not

240

2 necessarily a Bondex joint compound, but theyre indicating 3 joint compound and about 70 percent of those are indicating 4 specifically one of the products in the Reardon product line. 5 Q So 70 percent of the 226 claims indicated exposure to the

6 Bondex -- to a Bondex or a Reardon product line product, is 7 that right? 8 A Right. So closer to 63 percent of all claims or 76

9 percent of the one -- or 70 percent of the ones that indicate 10 joint compound first. 11 Q Okay. Did you do an additional analysis to try to

12 ascertain whether or not there were claims outside of the 1,476 13 claims noted in Exhibit 1 that you received data from Verus 14 that appeared would qualify for payment under the THAN Trust? 15 A 16 Q 17 A I did. And what did you find? Well, I took -- I mean, all these claimants have Im not -- so Im

18 mesothelioma, so Im assuming thats valid.

19 assuming they satisfy the medical criteria for a mesothelioma 20 claim. I didnt do anything independent to assess that. I

21 just assumed that would be true.

And then I looked at the

22 exposure requirements and looked at the exposure history that 23 these claimants had supplied in their PIQ responses and just 24 did a comparison to say does their exposure history that 25 theyve submitted to Bondex satisfy the conditions that need to

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Mullin - Contd Direct/Evert 1 be satisfied to receive payment from the THAN Trust. 2 Q And on what did you base those conditions? Was -- were

241

3 those the conditions in the THAN disclosure statement? 4 A 5 Q Correct. So did you come to a conclusion, Dr. Mullin, about what

6 percentage of the historical paid claims appeared to qualify 7 for a THAN Trust payment? 8 A I did a similar exercise for the historical claims.

9 Clearly, we didnt have any of those match to the THAN Trust 10 data. So I did the same thing I did for the pending claims I looked at their exposure allegations and

11 that hadnt filed.

12 I could only do this for the claims that were in my claim file 13 sample. But for that 1,000 claims, I looked at their exposure I assumed if they had

14 histories and I compared those again.

15 mesothelioma they satisfied the medical criteria and then I 16 looked and saw based on their exposure history do they appear 17 to qualify for payment from the THAN Trust based on the 18 disclosure statement. 19 Q And what roughly did you find in terms of the historical

20 claims in regard to the pending claims? 21 A The historical claims come in lower. Based on whats

22 observable to me, its coming in at more like two-thirds of the 23 historical claims as opposed to 75 or 80 percent of the pending 24 claims. So theres a lower rate. That needs -- theres

25 probably two caveats to that.

One is the data I have to work

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1 with for the historical claims it not as comprehensive as the 2 data under the PIQs. 3 history. So the PIQs ask for a fairly expansive

You dont always have that for the historical claims.

4 So some of the difference may simply be that I dont have the 5 full story for the historical claims. 6 of the gap. That could explain part

But the other part of the gap is that the

7 disclosure statement for the THAN Trust indicates that, you 8 know, the first shipments were in the 1960s. So we saw theres

9 a group of claimants that alleged exposure historically that 10 all predates the Reardon acquisition. So theres a bunch of

11 claims historically that may not have had exposure during the 12 appropriate years. And as we move forward in time, wed expect

13 to see fewer of those. 14 Q So did that lead you to an estimate of what you would

15 expect in terms of the future claims and their ability to 16 qualify for the THAN Trust? 17 A I mean, Id expect it to be similar to whats been

18 observed in the pendings and that youd expect it to be on the 19 order of three-quarters. It might be a little higher. If, you

20 know, in the future more of the claims have their exposure 21 during the period when the fiber shipments occurred as opposed 22 to predating them, but its going to be on that basic order of 23 magnitude. 24 MR. EVERT: Your Honor, I am -- I believe I am

25 finished with Dr. Mullin, although Id like to confer with

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Mullin - Contd Direct/Evert 1 notes for just a minute. 2 break and Ill -3 4 minutes. 5 6 MR. EVERT: Thank you. Your Honor, may we take a THE COURT: All right. So if we could take a five-minute

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Well be in recess for five

UNIDENTIFIED ATTORNEY:

7 10-minute break? 8 9 10 11 THE COURT: MR. EVERT: THE COURT: We will be in recess for 10 minutes. (Recess) Come to order. Please be seated. Before we go back

Thank you, Your Honor.

12 on the clock, we had one administrative -- and before we pass 13 the witness, one administrative matter that we did want to 14 cover having to do with the THAN information that I was just 15 discussing with Dr. Mullin. Mr. Gordon knows a lot more about

16 it, so I was going to let him handle it. 17 18 THE COURT: MR. GORDON: All right. Mr. Gordon.

Your Honor, its just an issue of

19 confidentiality.

You may recall that we had sought the THAN

20 claimant information from the trust and the claims processing 21 facility by subpoena. We, ultimately, after some court

22 proceedings, reached an agreement with respect to that data and 23 as part of that we entered into an agreed order that Your Honor 24 signed providing for the maintenance of the confidentiality of 25 that data. And so we did admit into evidence that data today.

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Mullin - Contd Direct/Evert 1 That was in Debtors Exhibit Number 80 and I just wanted to 2 make clear that that should be admitted under seal. 3 THAN claimant data, Debtors Exhibit Number 80. 4 THE COURT: Is there any objection to having it

244

Thats the

5 entered under seal? 6 MS. RAMSEY: No, Your Honor. In fact, we join in

7 that request. 8 9 seal. 10 MR. GORDON: Thank you, Your Honor. And then THE COURT: All right. Exhibit 80 will be kept under

11 similarly we also admitted into evidence the THAN ballots and 12 thats information we obtained by subpoena from the -- from 13 Kurtzman Carson, the balloting agent in the THAN case, and by 14 agreement in connection with that subpoena we also agreed to 15 maintain the confidentiality of the ballots. 16 17 THE COURT: MR. GORDON: The ballots will be kept confidential? Well, we wanted the data and that was a

18 condition that was placed on it by the party from whom we 19 received the information. We dont believe it to be

20 confidential either, but we did reach an agreement which I feel 21 were -22 23 24 THE COURT: MR. GORDON: THE COURT: What exhibit is that? Thats Debtors Exhibit Number 84. Any objection to keeping that under seal,

25 as well, Exhibit 84?

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Mullin - Cross/Sheppard 1 2 MS. RAMSEY: THE COURT: No objection, Your Honor. All right.

245

Exhibit 84 will also be kept

3 under seal. 4 5 6 7 ready? 8 9 ready. 10 11 12 Q THE COURT: MR. EVERT: All right. Thank you. Mr. Evert. MR. GORDON: Thank you, very much. Ready?

UNIDENTIFIED ATTORNEY: THE COURT:

Mr. -- Dr. Thompson (phonetic), are you

Oh, Im all right, Dr. Mullin, Im sorry. THE WITNESS: Thats all right, Your Honor. Yes, Im

Thank you, Your Honor.

Dr. Mullin, I think I asked you this yesterday, but I just

13 want to confirm that all the opinions youve given in your 14 testimony have been rendered to a reasonable degree of 15 scientific certainty in the field of economics? 16 A 17 Yes, they have. MR. EVERT: Thank you, Dr. Mullin. No further

18 questions at this time, Your Honor. 19 THE COURT: All right. One second, please. All

20 right, Mr. Sheppard. 21 MR. SHEPPARD: Thank you, Your Honor. If I may, Your

22 Honor, I provided copies of some demonstratives to debtors 23 counsel and to the witness. 24 Court. 25 THE COURT: All right. Id like to hand them up to the

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Mullin - Cross/Sheppard 1 MR. SHEPPARD:

246

Theyre also hopefully going to show

2 up on the screen, but in the event that -3 4 THE COURT: Okay. Thank you.

MR. SHEPPARD:

-- we have technical difficulties. Thank

5 Can we switch from the ELMO back to the -- there you go. 6 you. 7 8 BY MR. SHEPPARD: 9 Q 10 A 11 Q Good afternoon, Dr. Mullin, how are you? Good afternoon. Before I get into this, let me just work backwards a Sorry, Your Honor, one second. CROSS EXAMINATION

12 little bit.

We covered a lot of territory with Mr. Evert and I

13 just want to ask a couple of questions while its still fresh 14 in my mind if thats okay with you. Youll recall that Mr.

15 Evert asked you some questions about the inflation rate and you 16 did a -- some kind of calculation based upon the age of the 17 claimants, do you remember that? 18 A 19 Q Yes. Okay. And as I understood your testimony, you said that

20 the older the claimants got, the worse their evidence of 21 product ID was, is that correct? 22 A No, the -- what the data show is that older claimants are

23 less likely to get paid than younger claimants and its just a 24 regression analysis that has the probability youre getting 25 paid on the one side and age on the other and it shows that

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Mullin - Cross/Sheppard 1 thats an empirical relationship in the debtors data. 2 Q Okay.

247

Well, does that mean, Dr. Mullin, that if an older

3 person has sufficient product ID to get past summary judgment 4 that their claim isnt worth as much as a younger person? 5 A No. What its saying is that on average older claimants Its

6 are more likely to get dismissed than younger claimants. 7 not really saying why. 8 fact.

Its saying thats just an empirical

In the same sense, the older claimants get paid less on Thats also

9 average in settlement than the younger claimants. 10 an empirical fact in the debtors data. 11 similar empirical findings. 12 Q

The two are very

But does that mean that the older plaintiff has -- doesnt

13 have the same liability in your terms as a younger plaintiff? 14 A Its an interesting question. I mean, this depends how In the state tort system, If the

15 you want to think about the problem. 16 they receive less money.

So in that sense maybe yes.

17 true reason they receive less is due to an inability to 18 remember, if you cant remember its hard to file a tort claim. 19 Does that really mean the true liability is different? 20 means its harder for them to prove it. 21 that theyre less likely to get paid. It

But empirically we see

As the -- you would

22 expect since thats true today as we have more older claimants 23 in the future, that would become more pronounced in the future. 24 Q Thank you, Dr. Mullin. I want to pick up where I left off

25 a little bit on the voir dire and I want to make sure I

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Mullin - Cross/Sheppard 1 understand your methodology here. 2 MR. SHEPPARD:

248

Can we have the first PowerPoint slide

3 up, please? 4 Q All right. Dr. Mullin, if you look down at the middle of

5 the page, your estimate here is about $95 million for all the 6 present and future claims that have not been liquidated, is 7 that correct? 8 A Well, thats one of the scenarios that I gave. I mean,

9 what was Demonstrative 48 that I looked at before really laid 10 out a family of things in the step. The -- what the debtors,

11 the last step the debtors asked me to take that analysis to was 12 to the several share of liability and thats roughly what was 13 in Demonstrative 48 what was viewed as the present value of 14 that at about a five and a half percent discount rate -15 Q 16 A 17 Q 18 A 19 Q Okay. -- gives you that $125 million number. Okay. So thats one of my opinions. Thats one of your opinions. In your report, you use 6

20 percent, is that right? 21 A 22 six. In the -- well, I used in the body of the report I used I noted, I forget exactly what the footnote says, but in

23 the appendices I provided numbers for I believe it was at 4 24 percent through 9 percent. 25 Q Okay. But you used six because counsel told you to use

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Mullin - Cross/Sheppard 1 six, right, in your report? 2 A

249

They asked me to use six in the body of the report, thats

3 correct. 4 Q Okay. So you arent opining that six was the proper

5 number or 5.5? 6 A 7 Q No, Im -- not then nor now. Okay. All right. Now you said -- and lets go to So the 125

8 Demonstrative Debtors 48, assuming I can find it.

9 million, Dr. Mullin, includes the 90 -- the approximate 95 10 million plus the $30 million in liquidated claims that counsel 11 told you about, is that right? 12 A 13 Q 14 A Correct. Okay. What do you know about those liquidated claims? I mean, those -- most of

I actually know very little.

15 them, not all, but most of them were part of those same 16 inventory type settlements, so theres very little underlying 17 information about them because no discovery was taken from the 18 historical. I do have PIQs for many of them and so the PIQs So temporally I actually

19 give me some information about them. 20 know a decent amount from the PIQs. 21 Q

And you recall, Dr. Mullin, there was some testimony from

22 Mr. Tompkins, I believe, where he said that as part of those 23 inventory settlements, okay, the plaintiffs were required to 24 submit certain information as a precondition of getting paid, 25 do you recall that?

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Mullin - Cross/Sheppard 1 A 2 Q 3 A 4 Q I was present for his testimony. Do you recall it, sir? I recall his testimony. Is that consistent with your review of the documents in

252

5 this case? 6 A I mean, as I recall his testimony, it is consistent. I

7 mean, his testimony, as I heard it, was that they required an 8 allegation that was not contested in any way. 9 discovery or contest it. 10 recall him saying. 11 Q 12 A Didnt it say sufficient allegation, Dr. Mullin? Are you referring to his testimony or to the documents you They didnt take

They required an allegation is what I

13 showed him? 14 Q 15 A Either one. Take them in order.

So I thought the gist of his testimony was that the

16 claimant needed to make an allegation and that allegation in 17 these inventory deals wasnt ever contested. I believe the

18 language in the actual release or affidavit read stronger than 19 that. 20 Q And so, Dr. Mullin, in these inventory settlements that

21 were talking about here, you have these long lists, right, of 22 plaintiffs in these columns and then you have these plaintiffs 23 submitting information at different times to the debtors in 24 order to get paid, isnt that right? 25 A I mean, once they supply the documentation, then

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Mullin - Cross/Sheppard 1 presumably theyre eligible for payment. 2 Q Okay. So, if Mr. Harron, okay, was on that list and he

253

3 happened to submit his paperwork on May 30th, 2010 and it got 4 approved by Bondex, and counsel, in their wisdom, determined 5 that Mr. Harron deserved to get paid. Okay, Mr. Harrons going

6 to get treated differently than Mr. Sheppard whos right below 7 him in that same inventory settlement, who didnt actually get 8 his paperwork in, isnt it, under your theory? 9 A They are going to be very different. The one is a

10 liquidated contract claim and the other one is a pending claim 11 thats now going to receive individual evaluation and be 12 evaluated based on its own merits instead of as part of a group 13 settlement. 14 Q Based upon -- evaluated based upon your merits, Dr.

15 Mullin, not the debtors', correct? 16 A No, based upon how similarly situated claims that received

17 individual review in the past would have been paid. 18 Q Okay, Plaintiff A, okay, agrees as part of an inventory

19 settlement to get $10,000, submits his paperwork, its a 20 liquidated claim. Plaintiff B, the same inventory settlement,

21 same date, no paperwork, $10,000, right, not a liquidated 22 claim. Plaintiff B is not going to get the same amount of

23 money as Plaintiff A is he, under your theory? 24 A The -- hes going to get the same amount of money as a

25 similarly situated claim that received individual review, which

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Mullin - Cross/Sheppard

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1 will differ than claims that dont receive individual review. 2 I evaluated all the pending claims as though they were going -3 the merits of those claims were going to be taken into account. 4 I didnt evaluate any of the pending claims sight unseen. The

5 PIQ informations available, its based on an individual review 6 process, so youre absolutely correct that I assumed that there 7 would be no future settlements sight unseen -8 Q 9 A But isnt that --- where we are taking into account the merits of the I assumed that all the pending and future

10 individual claims.

11 claims should be evaluated based on their merits and I used 12 the ones where that had happened in tort system to value them. 13 I didnt assume that some fraction of them would be evaluated 14 sight unseen, where 90 percent would get paid at lower values 15 and another subset would get evaluated where 25, 30 percent 16 would get paid at higher values -17 Q 18 A 19 Q What is that --- because thats the tort history. Im sorry, Dr. Mullin, I keep interrupting you, I What is that fraction of cases that were settled by

20 apologize.

21 the plaintiff sight unseen -- or by the debtor sight unseen? 22 A Its varied through time, it was about -- I think we had

23 up before it was about 32 percent of the total settled, I think 24 total settlement dollars over the last eight years. In -- it

25 was a more prevalent practice in the last four years where it

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1 was -- it ranged between about a little more than 35 percent to 2 a little less than 50 percent of the claims. 3 Q Okay. So, it could be 50 percent of the claims, it could

4 be 35 percent, could be -- the lowest it could be probably is 5 32 percent, is that your testimony, of the claims that were 6 part of these group settlements that you excluded from your 7 analysis? 8 THE COURT: Im sorry. I thought Dr. Mullin was

9 talking about the dollars and you were talking about the 10 numbers, and Im not sure if thats correct. 11 MR. SHEPPARD: Oh, Your Honor, I apologize I was Lets do it in terms of dollars

12 talking about the numbers.

13 because I understand that you have to convert from claimants to 14 dollars, and I want to make sure were comparing apples and 15 apples. 16 A Either ones fine as long as we both know what were

17 talking about. 18 Q So, my question earlier was what was the percentage of the

19 claims of these large group settlement claims with the Cooney, 20 Lanier, and Simmons firms that you excluded from this 21 individual review analysis that you did? 22 A Well, I didnt exclude any of them. Historically, they

23 werent individually reviewed, I didnt have a choice in this, 24 these are -- 35 to 50 percent of the claims, depending on the 25 year, in the last four years had no discovery taken in the tort

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Mullin - Cross/Sheppard 1 system. I didnt exclude them, thats a historical fact, so

256

2 there isnt the underlying data on those claims, those were 3 these docket deals with no individual evaluation, thats not my 4 choice its a fact of the work. 5 Q But, in fact, Dr. Mullin, you did exclude them because you

6 go on to -- you say in your report that the group settlements 7 are not susceptible to your individual claim analysis, dont 8 you? 9 A 10 Q No. Is it because they dont have this discovery or this

11 information, is that right? 12 A Well, I mean, I cant compare the historical record for

13 the group settlements to the PIQ data because for group-settled 14 claims I dont have the same set of information that -- the 15 debtors never acquired that information in their tort history. 16 So, for group-settled claims I dont have an answer to 17 interrogatories, I dont have a deposition because the debtor 18 never acquired that information in the tort system. 19 20 21 22 Q MR. SHEPPARD: THE COURT: Your Honor, may I approach?

Yes.

(Off the record discussion at sidebar) All right. Dr. Mullin, so can we agree, sir, that 32

23 percent of the cases -- 32 percent of the historical cases in 24 Bondexs database were excluded from your individual review 25 analysis which is really the base of your opinion, isnt that

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Mullin - Cross/Sheppard 1 true? 2 A 3 Q 4 A

257

Were switching again, the 32 percent was the dollars -Okay, Im sorry. -- but its 32 percent of the expenditures were paid to

5 claimants for which the materials you would need to do an 6 individual review just dont exist. 7 Q 8 A So, is that a yes to my question? I didnt consciously exclude or not exclude, the datas

9 not there, I took into account the available information that 10 is there for them, but there isnt that same rich level of 11 underlying data for those claims. 12 Q So, we got 32 percent, right, which is Lanier, Cooney, and Now, you also I believe testified that you

13 Simmons, right?

14 were sure -- or your were certain, I dont want to misstate -15 but you were certain that there other group settlements of 16 which you werent aware, but that these were the largest that 17 you knew about, is that right? 18 A It is very likely that prior to 2007 theres additional

19 inventory deals, the datas indicative of that, I cant 20 dispositively show one way or the other, its one of the 21 reasons I focused on 2007 to 2010. 22 Q 23 A 24 Q Do you have any idea what that percentage may be -Is this supposed to be a percent? -- of the group settlements that occurred prior to 2007

25 that you included as part of your individual review analysis?

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Mullin - Cross/Sheppard 1 A

258

Well, for those -- everything was included and was in the Now,

2 sampling and things that I looked at outside of those 17.

3 those may be some claims that we sampled and looked at where 4 the claim file was very sparse, youll see you get a claim 5 filing and theres not much information in it, but I -- so, 6 none of those other ones were excluded in the sense that youre 7 using the term here. 8 Q Okay. So these 32 percent, as I recall, they were group Is that were you

9 settlements of over 100, isnt that right? 10 drew the line or -11 A I -- never.

The groups settlements where it was

12 documented that this one of these inventory deals, there were 13 17 of them. They vary in size, some are smaller than 100, some

14 are multiple hundreds of claims. 15 Q 16 A 17 Q But, are any of them less than 100? I believe so. Okay. And I believe you just said that they -- there were

18 probably other groups that were also less than 100, other than 19 these three, is that right? 20 A Theres -- that predate 2007, my understanding is that

21 that documentation is comprehensive in that more recent period, 22 and as you go further back it may not be comprehensive. 23 Q Okay. Now, not all group settlements, Dr. Mullin, were

24 these huge inventory settle your whole docket group, right? 25 A Well, what I used in my analysis, how I defined -- when I

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1 was talking about it in my report as a group and as Ive talked 2 about it here, Ive constrained myself to those 17, those are 3 the ones that were where the whole dockets being resolved in 4 the absence of discovery. 5 Q And by doing so youre treating any other group

6 settlements as if they were individually reviewed, isnt that 7 right? 8 A Define what you mean by another group settlement. Im

9 mean Im -10 Q 11 A 12 Q 13 A Well, not that -Im treating all the other settlements -Dr. Mullin --- all the other settlements constitute my individual

14 review, and these vary from settling early in a process on an 15 individual basis to settling -- not really settling at all and 16 going all the way to verdict. So, they are at all different

17 points in the discovery process. 18 Q Okay. Well, I was trying to keep it simple by using your

19 definition, and I was really simply harkening back to the fact 20 that you said you were certain there were other group 21 settlements other than these 17. 22 for group settlements. 23 A I think its likely there are, the period that I really So, Im using your definition

24 used though, which is 2007 to 2010, I dont think there are any 25 more.

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Mullin - Cross/Sheppard 1 Q Oh, so you dont think there are any more group

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2 settlements -3 A Predating 2007 with these three law firms there very well

4 may be -- you know, from 2007 through 2010 which is the period 5 that I ultimately relied on because thats when everything is 6 stabilized when you break it into the high value, mid value, 7 and low value groups, that four-year period, I dont appear to 8 be missing them because the group settlements effectively cover 9 all the resolved claims by those three law firms. 10 not any other resolutions that could be missing. 11 Q Any other group settlements with any other law firms based So, theres

12 upon your review of all that data in this case, other than 13 those three? 14 A I said those are the three that are documented -- its my

15 understanding from the debtors that those are the three that 16 they had these relationships with, and they didnt have 17 inventory deals like that, they -- so, those are the ones that 18 I understand to exist. 19 Q Well, I wasnt asking for your understanding, Doctor, I

20 was asking for whether or not you reviewed -- actually reviewed 21 the underlying data to determine whether or not there were any 22 other group settlements. 23 A So, theres many instances where more than one claim is

24 settled at a time, but thats -- discovery has still been taken 25 on the claimants, so its not uncommon for any defendant, and

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1 the debtors in particular, to have sat down with the plaintiff 2 law firm who has four outstanding claims about them and they 3 sit in one settlement meeting and they come to a resolution of 4 all four of the claims. And so at the end you may see a letter

5 documenting that, were going to settle these four claims at 6 these values. 7 Unlike the inventory deals, in this setting both They

8 sides had input into what were the individual values.

9 didnt first negotiate an aggregate amount and thats the 10 distinction Im making is ones that are -- the only input that 11 the debtors had was the aggregate amount of the settlement and 12 they didnt have input into what any individual claim would 13 assign from that, versus ones where, although they might have 14 settled more than one claim as they were doing with that 15 plaintiff attorney, they did have that input at the claim level 16 and they had taken some level of discovery. 17 Q Okay. So, lets start there and well work our way up.

18 Youre telling me that if four cases got settled on the same 19 day with the same law firm thats not a group because all four 20 of them were individually reviewed. 21 A How about ten?

Again, the discussion here is did they take discovery and The ones where I know they

22 evalu them individually or not?

23 didnt, where Ive -- you know, the debtors have told me the 24 documentations consistent with that of the 17 group 25 settlements that I specifically flagged in the underlying data.

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Mullin - Cross/Sheppard 1 Q

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And so, go back to my question, if they settled ten cases

2 on one day, okay, is that a group, Dr. Mullin? 3 A Its not going to be the same type of thing as weve seen

4 where its 80 cases, a few hundred cases and in general when 5 they settle small groups theyre talking about the individual 6 claims. Im not there in the settlement discussion so I cant

7 tell you exactly how that negotiation went, so -8 Q 9 A 10 Q But, you have the claims database, right? I do. Okay. And you could simply run a quick report and figure

11 out which cases were settled on which days, couldnt you? 12 A 13 Q I know which settlements are on the same day, yes. So, if you ran that report and you found that there were

14 45 cases settled on the same day with a law firm other than the 15 three law firms that were talking about here, are you telling 16 me that every one of those 45 cases was individually reviewed, 17 that there was a discovery done and that they were worked up 18 and that therefore they should be treated in your analysis in 19 that way? 20 A So, in general, that is how Ive treated them as though

21 theyve been individually reviewed, to the degree that Im 22 wrong and some of those were group settlements, you know if 23 they actually exist, then my numbers are too high. In the

24 group settlement when they do things sight unseen they split 25 the savings of defense costs, both parties -- theres more paid

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Mullin - Cross/Sheppard 1 in settlement, theres less paid in legal fees and the total 2 cost to the debtors is cheaper. 3

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And so to the degree if I have some small number of

4 those in the data I cant rule out that possibility, I dont 5 have somebody to authenticate every single settlement and which 6 ones specifically had discovery and which ones didnt. To the

7 degree Ive left some in, then my estimate of what everything 8 would get if it was individually reviewed is too high, I dont 9 think thats making a material difference based on my review of 10 the claims. 11 Q Now, let me see if I understand this. You say because you

12 may have made a mistake in excluding these cases that were not 13 individually reviewed by the debtors, youre saying that that 14 would make your analysis higher? 15 A Im saying its -- I wouldnt describe it as a mistake, I

16 would say I know how group settlements work, Ive seen them in 17 this case, Ive seen them elsewhere. When defendants do group

18 settlements where they dont take discovery, theyre explicitly 19 paying more per claim, we could see that with the 17, theyre 20 paying 63,000 a claim instead of 45,000 a claim. They pretty

21 much split the $40,000 savings in defense fees; 20,000 to the 22 claimants, 20,000 to the debtors. Thats how those processes

23 work, thats what the law and economics literature tells us how 24 they should work. To the degree Ive left a small number of

25 undocumented inventory settlements like that in the data and

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Mullin - Cross/Sheppard 1 included them, then Im overvaluing the claims under the 2 individual review standard. 3 Q How did you assure yourself of the number of group Did you look at all the

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4 settlements, what did you look at? 5 data from you got from the debtor? 6 A

I looked at the debtors data, I had discussions where I

7 could ask, Ive read the depositions of the parties that were 8 overseeing this litigation. They consistently discussed these

9 three law firms as the three law firms where they did these 10 types of deals, and that in general they didnt do it with 11 other law firms. So, the datas not indicative of another law

12 firm out there for which large inventory docket type deals are 13 being done. The deposition testimony of the people who ran the

14 litigation dont mention any other law firms beyond these 15 deals. So, I dont see anything that points to me that Im

16 missing a material piece of this picture, particularly in the 17 2007 to 2010 time period. 18 Q Well, lets go to debtors Demonstrative 26. You with me,

19 Dr. Mullin? 20 A 21 Q I am. As I recall your testimony about this -- oh, Im sorry,

22 Your Honor, Ive got both going here. 23 24 A THE COURT: Its okay, you can leave it on.

I only see part of it on my screen, I dont know if thats

25 true of most, but mine is very truncated.

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Mullin - Cross/Sheppard 1 Q

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Thats how it came to us, I guess they got right in with I guess Ill have to use the ELMO. Do we have a clean version of D-26?

2 just the part of it. 3 4 Q 5 A 6 Q

MR. SHEPPARD:

I apologize, Dr. Mullin. It's not a problem. Okay. Now as I recall, Dr. Mullin, the significance of

7 D-26 according to your testimony was that you thought that this 8 -- using your econometric methods showed that the dismissed 9 cases which is that blue line, right, was unstable while you 10 had these more stable lines down at the bottom, right, the 11 orange line, the green line? 12 A I wouldnt describe the dismissed cases as unstable. What

13 I drew from this was that theres been just under 300 claims 14 per year that if the subjective individual evaluation were 15 compensable, and thats been true for a long time, while the 16 number of claims that are being filed kept growing, those 17 additional claims were passing largely straight through as 18 dismissals, they werent adding to the number of high value 19 claims, the high value claimants had been naming them for a 20 long time. So, what you see here is additional claims coming

21 in, but these marginal additional claims arent really adding 22 value to the process, so -- and this is, as I said, consistent 23 with the total expenditure where although the propensity to see 24 was almost double in the last eight years, the total spent 25 hasnt, and it really reconciles those two points.

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Mullin - Cross/Sheppard 1 Q Now, if a case was dismissed as part of a group

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2 settlement, Dr. Mullin, did you include that in your chart for 3 D-26 -- DD-26? 4 A 5 Q (No audible response). Well, let me ask it this way. Do you recall that as part

6 of group settlements there were a number of cases that were in 7 fact dismissed, isnt that right? 8 A 9 Q About ten percent of them. Okay. So, not all of them were given what you

10 characterized as a nuisance payment, isnt that right? 11 A Well, they were given values that ranged from zero into

12 the hundreds of thousands. 13 Q 14 yes? 15 A Yes, ten percent of them received -- were allocated zero Well, my question was about the zeros, so I guess thats a

16 by their plaintiff attorney. 17 Q And doesnt this blue line exclude those dismissals, Dr.

18 Mullin? 19 A No. So, I had two versions of this exhibit, I had

20 Demonstrative 15, which was looking only at the individually 21 evaluated claims. And then this is the one that took into

22 account the group settlements and said the individually 23 evaluated claims isnt everything. So, if I were to take

24 something like the Cooney law firm where around one percent of 25 his claims and close to 1,000 claims that were resolved by a

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1 group settlement, about one percent of those were in the high 2 value category, if I look at those long lists, thats too low, 3 more than one percent of his claims would have been high value 4 if theyd been individually evaluated. And I would have --

5 Ill use 1,000 as a round number, Id expect there to be 50 or 6 60 out of that 1,000 that were high valued, not the ten or so 7 that are observed in the data. 8 So, I applied what I observed in the individual

9 evaluation to the Cooney group settlements, I say even though 10 the documentation how Cooney -- how the Cooney law firm 11 allocated the money in that long list gave ten high value 12 claims, I dont think thats right. I think that if theyd

13 been individually evaluated you wouldve seen 50 or 60 high 14 value claims. So, I added 50 or 60 to the blackline, I raised

15 that -- now, its 50 or 60 over four years, so its adding a 16 few each year. 17 Then, I also said, I dont think if they were

18 individually evaluated 90 percent of them would have been paid, 19 when things are individually evaluated 70, 75 percent get 20 dismissed. So, if there were 1,000 claims I would have added So, Im applying that individual So,

21 700 dismissals to the chart.

22 review when that actually happens to the group settlement.

23 Im adding high value claims, where theres a very large number 24 of claims for less than 200,000 many of those go to dismissals, 25 some of them stay at mid and low value, and some of them move

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Mullin - Cross/Sheppard 1 into the high value category. 2

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So, this has redistributed that in an essence, I said

3 the plaintiffs attorneys are clearly spreading the money more 4 evenly when left to their own discretion than what you observe 5 when theyre kind of claim by claim arm's length negotiations 6 happen, many fewer get paid, but the ones that do get paid get 7 a lot more money. 8 Q So, can we agree, Dr. Mullin, that as part of these group

9 settlements the plaintiffs are also not individually working up 10 these claims? 11 A 12 Q 13 A Its an interesting question -- I mean -And I was so hopeful we could agree. -- from their perspective -- no, Im saying well, from

14 their perspective theyre pursuing the case against numerous 15 defendants, so theyre working up the case not just against 16 these debtors, theyre working up the case in general. So,

17 they are working up the claimants work history, they are 18 learning what are the other sources of exposure and which other 19 defendants they can collect money from, and theyre suing lots 20 of other defendants in pursuing that. 21 theres the same distinction there. So, I dont think

Now, they may not be doing

22 as much against this particular debtor, but theres not that 23 much to do either, you kind of -- did the guy use the product 24 at home or didnt he. 25 Q Well, I think youll probably hear testimony that would

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1 not agree with that, Dr. Mullin, but lets just talk about that 2 for a second because I agree with you, I think its pretty 3 interesting. Dont you -- lets go back to where I was before, Would

4 lets just talk about these particular debtors, okay.

5 you agree with me that if theyre doing group settlements, 6 these large group settlements, that the plaintiffs lawyers are 7 not working up their case against Bondex and SPHC, because 8 thats the whole economic engine for your theory, right, is to 9 save those transaction costs? 10 A 11 Q Both sides save on transaction costs, thats true. So, can we also agree, Dr. Mullin, that if the plaintiffs

12 lawyers had, in fact, worked up those cases that based upon 13 your theory that they would be worth a lot more money? 14 A No. So, what happens here is, its the relative So, the distortion -- how far the

15 transactions costs.

16 settlement differs from liability is a function of who has more 17 of the transaction costs, thats what the theory tells you. 18 When you go to the peer review literature it says, whos at the 19 transaction cost disadvantage, who faces higher transaction 20 costs? And when you look at that the debtors are facing As Ive read the

21 $300,000 to take the case through trial.

22 deposition testimony of the plaintiffs attorneys they say they 23 have 25 to $50,000 of expenses. So, the party that saves a lot

24 more money by settling the case early is the defendant, theyre 25 saving up to $300,000 of trial costs all the way through, the

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1 other side is only saving 20, 25 thousand if you thought of all 2 of those costs as being associated with this one defendant. 3 But, theyre really incurring that 25 to $50,000 of costs 4 pursuing the case against 50 different defendants in the tort 5 system. 6 So, its not that they have that much of costs for

7 each defendant, their per defendant cost is around $1,000, so 8 theres a big asymmetry and the literatures very clear that 9 the party at the disadvantage -- whichever party that is, in 10 some cases thats reversed, and its the plaintiff thats at 11 the disadvantage that has higher costs and then they outcome 12 would be reversed. So, the theory doesnt give a direction, it

13 says you have to look factually, where are the transaction 14 costs, how does that affect things? The party with higher

15 transactions costs is going to pay to avoid those. 16 Q Okay. Im sorry I guess my point wasnt well made, let me The plaintiffs lawyers are settling these cases

17 try it again.

18 in large groups along with the defendants, right -- or the 19 debtors, right? Im doing the same thing Mr. Evert was doing.

20 I mean, theyre agreeing to participate in this process, right? 21 A 22 Q 23 they? 24 A 25 Q Yes. Thats what you just said, right? Correct. And they have some economic incentive to do so, dont

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Mullin - Cross/Sheppard 1 A Yes.

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Theyre -- I mean its fairly clear, they get 65,000

2 a claim instead of 45,000, theyre much better off. 3 Q And you said that it was 25,000 for the plaintiff in

4 transaction costs, but that may be spread across a number of 5 defendants, right? 6 A Twenty-five, fifty thousand, depending on what you want to

7 look at. 8 Q 9 A But that doesnt include attorneys' fees, right? I mean, it doesnt, but you dont save attorneys' fees by One of the big distinctions here is, its

10 settling earlier. 11 whats saved.

So, if you look at it from a claimants

12 perspective, if theyre paying a contingency fee to their 13 plaintiff attorney if they settle for $100,000 today on 30 14 percent contingency they owe the attorney the 30 percent 15 contingency. If they take the case deeper into litigation for

16 four months and settle for $100,000, they still pay 30,000. 17 So, since theyre being paid on a contingency, theres no 18 savings. What the theory says is its how much of the cost do You know, the defendant since

19 you save by settling early.

20 theyre typically paying hourly for their attorneys, when they 21 stop they actually pay less. The same settlement earlier in

22 time saves the defendant attorney fees it doesnt save the 23 claimant attorney fees. 24 MR. SHEPPARD: Okay. So, if we could go to Slide

25 Number 2, please.

This is my poor effort, Dr. Mullin, at

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Mullin - Cross/Sheppard 1 trying to reduce your theory to a simple equation. 2 to switch back, there you go. Thanks, John. 3 Thats not it.

272 Youve got

Slide 2, please. Can

This is why we had a hand out, I got it. Thank you.

4 you just take that off the screen, please? 5 Q 6 A 7 Q

Dr. Mullin, do you have your handout up there? I do. Okay. So, this is the slide that Ms. Ramsey put up during Settlement value minus

8 her opening, and I know you were here. 9 implicit defense costs -10 11 12 a set. 13 14 15 THE COURT: Well, you did. THE COURT:

What are you looking at, please? Oh, Your Honor, I thought I handed out

MR. SHEPPARD:

MR. SHEPPARD: THE COURT:

Im looking at the second page.

Dr. Mullins methodology can be described

16 as follows...? 17 18 19 20 21 22 Q MR. SHEPPARD: THE COURT: Yes.

Is that it? Yes.

MR. SHEPPARD: THE COURT:

Okay, thank you. Sorry, Your Honor.

MR. SHEPPARD:

Settlement value can be described as follows -- or that

23 Dr. Mullins methodology can be described as follows; 24 settlement value minus implicit defense costs minus reallocated 25 share equals several liability, is that -- did we get that

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Mullin - Cross/Sheppard 1 right? 2 A No. So, its adjusting settlement values for these two So, I

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3 factors, but this depends clearly on where you start.

4 chose to start with the data of the experience of 2007 to 2010. 5 What the data tell us about that period of time is that during 6 that period the debtors were paying in settlement more than 7 what their liability was. So as an empirical outcome you are

8 subtracting something for defense costs, you are subtracting 9 for a reallocated share. 10 If that started in the 1990s Id be adding, so if you

11 were to go back to the 1990s where they were paying less than a 12 million dollars a year you would -- its the exact same theory 13 the transaction costs are in a different direction, they arent 14 being pursued in all the cases for which they have liability, 15 and youd have to build up. So, if you started in the 1990s

16 this equation would say, settlement amount, plus the costs from 17 the plaintiffs side thats causing them to not pursue them in 18 cases, youd have to add up to it. So, given where I started

19 Im coming down, if I started in the 1990s I wouldve been 20 going up. 21 Q Okay. Well just -- again, I want to be clear about

22 things. 23 A 24 Q

Bondex first got sued in 1980, right?

Correct. Okay. And they -- and I think you heard testimony and I

25 expect it was confirmed by your review of all the data here

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Mullin - Cross/Sheppard 1 that they really didnt become a player in the asbestos 2 litigation until the late 90s, correct? 3 A

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They were named on a number of law suits in the 90s, they

4 -- yes as I said theyre paying -- they paid about $10 million 5 over the 1990s, so its not a million every year, but you can 6 think of it as about a million a year which I would -- I have 7 the opinion that thats less than they were actually liable for 8 in that period. 9 Q Now, going back to what you just said, so for that period

10 of time, Dr. Mullin, if we apply your theory of reallocated 11 shares where Bondex isnt getting named, are other joint 12 compound manufacturers paying Bondexs share? 13 A Potentially. They may not. In a joint and several tort,

14 there is -- if you exposure to 500 different companies and you 15 only sue 50 the 50 pay the total amount. I mean, they could

16 pursue contribution claims or different things potentially, but 17 as a big picture concept, yes. 18 Q And based upon your review of the data, Bondex never

19 pursued any such claims, did they? 20 A 21 Q 22 A 23 Q In the 1990s or recently? At any time? Im not aware of them pursuing contribution claims. Okay. So, Bondex stays under the radar screen until the

24 late 90s, 2000s okay, in that time period and during that time 25 period under your theory somebody else is paying Bondexs

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Mullin - Cross/Sheppard 1 liability to the plaintiffs, is that right? 2 A Well, I would describe that differently. I think the

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3 outcome is a very logical outcome, their several share in most 4 cases is very small when all those other defendants were there. 5 If theres a party that has a several share in a case thats 6 you know $5,000, is it worth it as a plaintiff attorney if you 7 have Owens Corning in the courtroom and others to bother 8 pursuing them. 9 If its going to cost you more distraction and

10 different factors than youre going to get, thats why I said 11 the transaction costs are reversed. I dont know so much that

12 its that they were flying under the radar screen, as the 13 plaintiffs attorneys made the same logical decision in the 14 1990s on pure economics that the debtors made in the 2000s. It

15 wasnt worth their time and effort to collect the little bit of 16 money they wouldve gotten. 17 Q But your allocation of several share, Dr. Mullin, has

18 nothing to do with the transaction costs, does it? 19 A 20 Q No, thats a different statement. All right. And I thought thats what we were talking

21 about.

So, let me ask it again, in your theory you are

22 suggesting that Bondex is paying some other defendant, whether 23 solvent or not, share of the liability, is that right? 24 A 25 Q Today? Yes.

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Mullin - Cross/Sheppard 1 A 2 Q 3 A 4 Q 5 A In their recent tort history -Right. -- you know what Im saying? In their recent tort history, isnt that your theory?

276

In their recent tort history what the literature tells us,

6 what the empirical work shows us is that not other solvent 7 defendants -- not their co-defendant whos with them in the 8 tort system, but of all the companies that are no longer in the 9 tort system. You know, so if theres a company with zero

10 assets its been liquidated as no assets left, its clearly not 11 paying its own share, but its share is being paid still in a 12 joint and several tort, the remaining defendants pick that up. 13 Q Okay. Now what if one of the solvent co-defendants

14 settles the case for five dollars would you agree with me that 15 that is that co-defendants several share, in that case? 16 A Almost assuredly not. I mean, I think -- what are the

17 main points in the analysis Ive done that if theyre settling 18 -- if the plaintiffs willing to take five dollars in 19 settlement its probably a nuisance claim, their several share 20 is likely zero. So, on very low value settlements, you know, I Thats really --

21 dont think its really connected to that.

22 thats what the debtors that are inexperienced shows you, but 23 more generally very low value settlements are going to be like 24 that across the board, the economics are the same. 25 Q But going back to the concept, Dr. Mullin, that after the

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Mullin - Cross/Sheppard 1 bankruptcy weight Bondex is paying someone elses liability, 2 but before that bankruptcy weight according to your theory,

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3 somebody else is paying Bondexs share, Im trying to tie down 4 what that several share is. And my question, sir, is if --

5 excuse me -- if a party settles for five dollars, $49,500, 6 $75,000, pick a number okay, would you agree with me that that 7 settlement reflects that co-defendants several share? 8 A Frequently not. I mean, what the whole literature tells So,

9 you is the settlements frequently deviate from liability.

10 you keep asking me do settlements equal shares of liability, 11 settlements in general dont equal liability, they differ from 12 it for a variety of reasons, one very large reason being the 13 transaction costs of the two sides. So, Im trying to help --

14 I mean, any time you ask me do settlements equal liability in 15 general, my answers going to be no. 16 Q 17 A Okay. If youre trying to get to something else, Im trying to

18 figure out what it is. 19 Q Im trying to understand why when a party settles a case

20 -- lets do it this way, youve been involved in asbestos 21 litigation for what ten years you said? 22 A Right. I started doing work in this area approximately

23 ten years ago. 24 Q Okay. So, I assume youve reviewed a number of releases

25 in your career, right?

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Mullin - Cross/Sheppard 1 A 2 Q Thousands, at this point. And generally those releases provide that they are

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3 releasing just a particular defendant, its successors, heirs 4 and assigns and whatever, but its not releasing anybody else, 5 is it? 6 A 7 Q Thats the most common form. Okay. And thats generally the form that Bondex used

8 here, isnt that correct? 9 A 10 Q 11 A 12 Q I believe so. You reviewed those settlement agreements, didnt you? We looked at a number of them. Okay. They didnt say that they were paying National

13 Gypsum's share in that settlement agreement, did it? 14 A 15 Q 16 A No, it didnt. Okay. It says youre getting a release for whatever liability

17 the debtors may have had in the tort system, part of that 18 liability they wouldve had in the tort system it -- if U.S. 19 Gypsum was paying zero -- its not, its got a large trust -20 but if it was paying zero, theres no recourse against that 21 entity. I mean, so there is transferred liability from Johns

22 Manville, from Celotex, from these companies that solvent 23 defendants collectively have been paying. 24 Q Lets go back to what you said before, it extinguishes

25 Bondexs liability, isnt that right?

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Mullin - Cross/Sheppard 1 A Wait -- among -- it does that and it ends their defense

279

2 expenditures -3 Q 4 A 5 Q And theyre buying --- and its doing a number of things. And theyre buying that from the plaintiff with their

6 consideration for their release, right? 7 A Theyre buying finality, they end all of their costs,

8 defense costs, potential for an adverse verdict, theyre buying 9 finality across all the costs associated with that claim. 10 Q Theyre extinguishing their several share in this

11 particular litigation, right? 12 A Theyre extinguishing that and more. Theyre

13 extinguishing anything they may be held liable for in the 14 litigation, as well as any other costs they may face in 15 litigating that going forward. 16 Q And even in the group settlements, Dr. Mullin, youll

17 agree with me that those amounts were negotiated, right, 18 whether in gross or individually. 19 A 20 Q Yes, the gross amounts were negotiated. Okay. And you said that based upon your review you were

21 aware of how Bondex came to that aggregate number, or were you? 22 A Well, Im aware that they were paying attention to their

23 total costs, their corporate executives say they were doing 24 exactly what an economist would expect them to do, theyre 25 trying to minimize their total costs. So, for the law firms

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1 with very large inventories you try to do an inventory deal and 2 avoid all of your defense fees. 3 Q No, my question, Dr. Mullin, was a little more specific We looked at a couple of group settlements

4 than that.

5 yesterday, and I dont know if Mr. Evert showed you one or not, 6 but there was one for $22 million with the Lanier firm, do you 7 remember that one, approximately? 8 A 9 Q It sounds familiar. My question to you is, do you know how they arrived at

10 that number, 22 million, how Bondex arrived at that number, 22 11 million? 12 A I mean, I dont know how they sat in a room with Mark

13 Lanier and negotiated to that exact number. 14 Q 15 A Okay. I know that from their side -- my understanding of the

16 economics that were driving them is they felt like that was 17 less money than they would have to pay in combination to their 18 defense attorneys and in ultimate judgments if they continued 19 to litigate them. I know thats their rationale, it was

20 cheaper to do that than continue to pay defense attorneys and 21 pay whatever was owed at the end. 22 Q Did you see any specific evidence as to how they arrived

23 at that 22 million in the record here, or based upon your 24 review of the documents? 25 A I dont have a particular recollection of that settlement

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Mullin - Cross/Sheppard 1 sitting here. 2 Q All right. Lets talk a little more broadly then.

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Isnt

3 it a general practice, Dr. Mullin, for the plaintiffs firms 4 that engage in these group settlements that their negotiations 5 generally focus on the average settlement amounts for 6 particular disease types with that particular defendant? 7 A Its common for everybody to reference their history, so

8 if youre doing your third deal with Cooney and Conway, Mark 9 Lanier, whoever it may be, the terms of the last deal you did 10 is often the starting point. I mean thats -- if you

11 negotiated to a number that was X thousand dollars per claim in 12 the last big deal, the plaintiff attorney is going to come 13 thinking theyre going to get at least that much per claim in 14 the next deal. So, I mean those types -- theres a whole

15 negotiation history and theres that benchmarking, but thats 16 not -- I mean how you got to the number in the first place is a 17 combination of factors. 18 Q Okay. So you start this negotiation with the average

19 amounts that historically the plaintiff had received from that 20 particular defendant, right, for particular disease types, 21 isnt that where it starts? 22 A Well hey, its very much on the second or third time I mean, the second or third time around if youve done

23 around.

24 one big deal where you paid 50,000 a claim as the debtors have 25 done that, if they walked in a year later and said, okay on the

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Mullin - Cross/Sheppard 1 next deal we only want to play 25,000 a claim they probably 2 wouldnt have gotten very far.

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You know, theres a benchmark

3 that weve done this once before, this is what -- we negotiated 4 for a long time and got to this number last time, can we 5 shortcut it and just use that number again? But thats using

6 one group settlement to value the next group settlement. 7 Q And isnt that what happened, in fact, in these asbestos

8 cases? 9 A I mean, theres -- the numbers dont move that much from

10 group settlement to group settlement when I look across the 17 11 deals, they vary across the law firms, but the second deal with 12 the same law firm doesnt look that different than the third 13 deal or the fourth deal, which makes sense. I mean, its the

14 same negotiation happening a second time, youd expect them to 15 come out to about the same number. 16 Q So, the parties in their negotiations at least were

17 comfortable at least in starting their negotiations with this 18 average settlement amount, isnt that right? 19 A Well, I say, its the average amount of those paid in the

20 last large deal. 21 Q 22 A Right. Which already has embedded in it all the economic factors I mean, I would fully expect them to say, if

23 from both sides.

24 weve had this exact same negotiation once before and we came 25 to a value of 60,000 per claim theyre not going to start from

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Mullin - Cross/Sheppard 1 scratch the next time. 2 Q

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So, the average settlement amount has all of your economic

3 factors baked in, isnt that true, is that what you just said? 4 A 5 Q 6 A The average settlement amount? Yes. The settlement amount from the debtors side, yes, it

7 takes into account what they would expect to pay if they tried 8 the case, it takes into account their costs of litigation, all 9 of that goes in to their consideration. Thats why part of it

10 -- of what theyre paying is associated with the liability and 11 part of it is associated with the defense costs, both of those 12 were material considerations for them. 13 Q Okay. So, in the group settlements at least youll agree

14 with me that the settlement value is probably the best measure. 15 A 16 Q 17 A 18 Q Best measure of what? So, the -- Im -- let me finish. Okay. Youll agree with me its the best measure to start with

19 to look at what might happen in the future, isnt that right? 20 A I mean, if they were to do another group settlement, that

21 would be a good thing to look at. 22 Q And dont you think, Dr. Mullin, that Bondex being the

23 smart defendant that it is, is going to continue in the future 24 to do these very same group settlements? 25 A Its in its economic interest to do group settlements

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Mullin - Cross/Sheppard 1 where theres large inventory of claims and it can avoid 2 defense fees, thats in its economic interest. 3 Q

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In fact, Mr. Tompkins testified yesterday that, in fact,

4 that was their trend moving to more and more group settlements, 5 isnt that right? 6 A I -- to the degree there were additional attorneys they I mean, the underlying

7 could come to that understanding with.

8 economics are pretty simple, they say 40,000 per claim in 9 defense costs, half of that approximately goes to the claimant, 10 half of that goes to them. 11 Q So, for at least in your scenario a third of Bondexs

12 claims fall under this group settlement category, we are in 13 agreement that the average settlement value in those cases is 14 the place to start for your forecast, right? 15 A I forecasted the value of claims based on the individual So, for my

16 merits of different claims, I didnt do groups.

17 forecast, when I looked at it, I assumed the merits of the 18 claim mattered. So, I looked at what were claimants paid when

19 the merits of the claims were examined, thats the forecast 20 that I did. If you wanted to do a different forecast that

21 said, never looking at the merits of a claim, I dont want to 22 look at the merits of the claim, I dont care, Im just going 23 to give every claim some amount of money and I want to try to 24 -- thats the route that you want to go down, thats not what I 25 did. I said, Im assuming were actually going to evaluate the

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Mullin - Cross/Sheppard 1 merits of claims so I looked at the universe of claims where 2 that had been done historically. 3 Q

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Now, so what you did, Dr. Mullin, really was you excluded

4 a third of Bondexs historical settlements from your analysis, 5 isnt that true? 6 THE COURT: Excuse me, I have to correct the record.

7 He -- when Dr. Mullin is talking about this 32 percent, hes 8 talking about settlement payments not numbers of claims and you 9 keep referring to numbers of claims, can you please get this 10 straightened out for me? 11 12 Q MR. SHEPPARD: Im sorry, Your Honor, I apologize.

What is the percentage of claims, Dr. Mullin, that fell

13 into these 17 group settlements? 14 A The average for the last four years was about 40 percent

15 of the claims. 16 Q So, actually its not 32 its 40, they excluded 40 percent

17 of all the cases in Bondexs historical database and then did 18 your analysis, your entire analysis on 60 percent, isnt that 19 what you did? 20 A I didnt exclude -- I mean, these claims exist, theyre in

21 the filing rates, a number of them Im viewing as compensable. 22 As I said, with the Cooney -- the Cooneys the one that I can 23 remember, I dont remember the numbers on the others, which is 24 why I keep going back to it -- but, the Cooney offer had, I 25 thin, Cooney law firm had I think seven of these group

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Mullin - Cross/Sheppard 1 settlements, and as I said before one percent of those were

286

2 allocated a payment in the high value range by the Cooney firm. 3 I still looked at those claims, I said based on what I know I 4 wouldve expected more like five or six percent of those 5 claims, I didnt exclude them. 6 I took into account that they hadnt been

7 individually evaluated, I said what is the likely outcome -8 just as we value a pending claim, we dont know the settlement 9 value of a pending claim, but we go and look and we say if you 10 individually evaluated these settlement claims, what are they 11 likely to have gotten paid? 12 I went through the exact same process for the group

13 claims, we dont have arm's length individual amounts, theres 14 too few high value claims, theres too many low value claims 15 that got paid relative to what happens when you go through an 16 individual review. 17 So, I went and applied that individual review

18 standard to those claims and thats how I did my analysis, I 19 didnt exclude them, I accounted for the fact that they hadnt 20 had individual evaluation and made it so fewer of them received 21 payment which is consistent with what you see with individual 22 review and the ones that did get payment got a lot more money. 23 So, it ups my counts of the high value claims and it lowers the 24 count of the low value claims to make it consistent with whats 25 observed when individual evaluation occurs.

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Mullin - Cross/Sheppard 1 Q Okay.

287

But, what you did though was you basically ignored

2 what happened in the tort system and reallocated those 3 settlements, isnt that right? 4 A Again, I didnt ignore. Whats -- what happened there is

5 I understood the process. 6 Q You ignored -- Dr. Mullin, I dont mean to interrupt you, You ignored the

7 but I just want an answer to my question.

8 settlement value placed on the case by the actual parties, 9 didnt you? 10 A I came to the conclusion that the values that were placed

11 by the plaintiff law firms are statistically very, very 12 different from what happens from individual review and arent 13 representative of an individual review process. And my

14 understanding from the testimony of the parties that did these 15 negotiations is they werent arm's length individually 16 negotiated, they dont have the same foundation under them as 17 the individually evaluated claims. So, I didnt rely on the

18 values that the plaintiff law firms assigned because I didnt 19 view them as comparable to the others and reliable for the 20 purpose of forecasting what individually evaluated claims are 21 worth because thats not what they represent. 22 Q Okay. So, Bondex wrote a check for $22 million without

23 looking at anything to do with these cases, is that what youre 24 saying? 25 A The testimony of the parties that have done that -- my

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Mullin - Cross/Sheppard 1 understanding of the process is thats effectively what they

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2 did, they had a large group of claims, they knew it was going 3 to be very expensive to litigate them, they knew at the end of 4 the litigation theyd face material liability, as well. And

5 they were able to negotiate a settlement that absolved them 6 both of those litigation costs and of the liability for less 7 money than they thought it would have cost to litigate, thats 8 my -- exactly my understanding of what they did. 9 Q And, in fact, they did it based upon the average

10 settlement amounts that historically they had paid to those law 11 firms in prior cases, right? 12 A Again, its not -- thats not really correct. If you want

13 to look at whats going on, theyre paying 90 percent of them 14 now. So, I mean if how you want to characterize it is the

15 average resolution value of these claims goes up, when they a 16 enter group settlement framework theyre paying more per claim. 17 Now, a lot of thats because theyre paying a lot more claims, 18 90 percent of them are getting paid instead of more like 25, 30 19 percent, you know. But, they put more money in than if they

20 continued to individually evaluate the claims. 21 Q 22 Okay. All right, lets move on Dr. Mullin. MR. SHEPPARD: Im sorry, Your Honor, I have the

23 wrong version of -- can we have -- I dont know what slide 24 number this is. Its Number 77 at the bottom, it looks like

25 its about the sixth slide.

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Mullin - Cross/Sheppard 1 2 3 4 THE COURT: The one thats numbered 77? Yes, Your Honor.

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MR. SHEPPARD: THE COURT:

All right. Its at the top it says Exhibit A

MR. SHEPPARD:

5 Debtors mesothelioma claims experience. 6 MR. SHEPPARD: Now, I guess, Your Honor, I apologize Im going to mark these

7 I should have marked these before.

8 collectively as ACC, FCR, Demonstrative, I dont know what 9 number were up to. 10 11 12 THE COURT: One thousand two. One thousand and two.

MR. SHEPPARD: THE COURT:

So, thats starting with Page 2 going

13 through the whole packet, youre going to mark this as 1002? 14 15 16 17 Q MR. SHEPPARD: THE COURT: Yes, Your Honor.

All right. Thank you.

MR. SHEPPARD:

Dr. Mullin, if you look at the 6th Page of Demonstrative

18 1002, thats a chart from your initial report, right? 19 A 20 Q It appears to be. And its got fiscal year on the left and then theres a

21 column for settlements incurred, is that right? 22 A 23 Q 24 A Thats correct. Okay. What do you mean by settlements incurred?

In the main purpose its including the SBND payment --

25 settlement amounts so it has in it -- even though they may not

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Mullin - Cross/Sheppard 1 have been paid, those are in these numbers. 2 Q 3 A 4 Q 5 A The ones that counsel told you should be included? This has all of them. This has all of them? So, looking at the history -- its saying in the tort

290

6 system theres about 60 million of SBNDs in the database. 7 Q 8 A Right. This has all 60 million of those in here, they all havent

9 be paid, but theyre all in this historical tabulation. 10 Q Okay. And what, Dr. Mullin -- if we look at 2005 based

11 upon your calculation of settlements incurred Bondex pay 46 12 million -- approximately $46 million to settle cases in 2005, 13 is that right? 14 A Thats -- they incurred that at that point in time, the

15 payments may be at a different point in time, but thats when 16 they incurred. 17 Q And then the next year I think you testified was unusually

18 low -- oh that was 28 and a half million approximately, right? 19 A 20 Q Correct. And then it gets back up to 48 and then 61 which you said

21 -- I believe you said was high because of the 28 being too low, 22 correct? 23 A The data -- it appears that the -- you know, theres about

24 a $20 million shortfall in 2006 from whats the typical year in 25 each of 2008 and 2009 are ten million above whats typically

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Mullin - Cross/Sheppard 1 observed and if you look at the settlement lags, it appears 2 that its a deferral. 3 Q All right. So, if you -- and I believe this is one of

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4 your other charts that Mr. Evert showed you, but can we agree 5 that the average settlements incurred by Bondex from 2005 to 6 2010 was over $40 million a year? 7 A 8 Q 9 A In 2005 to 2010? Uh-huh. I havent done it explicitly, but it appears to be more

10 than 40. 11 Q Okay. So, it was at least 40 million a year for 2005

12 through 2010 fiscal year, right? 13 A 14 Q Correct. And its your opinion in this case that Bondex should only

15 have to pay for the next -- I dont know what, 30, 35 years 16 $72 million? 17 A No, thats a legal conclusion. Theres arguments being

18 put forth by the debtors that if theyre right -- I dont know 19 if theyre right or if theyre not, thats why I have the 20 different alternatives in my opinions. If their legal theory

21 is correct, Ive quantified it, if its not correct, Ive 22 quantified alternatives, as well. I dont have an opinion

23 about whos right and whos wrong on the legal theory, Ive 24 just quantified the implications of the different legal 25 arguments that have been put forward.

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Mullin - Cross/Sheppard 1 Q

292

But as I understood it after you start with the settlement

2 value which is where you start and then you subtract out your 3 implicit defense costs and your several share allocation these 4 two constructs that youve created, you end up with your 5 damages or true liability, right? 6 A Correct. If the debtors are correct that they dont have

7 -- they have to pay legal liability not the transaction costs 8 theyve been paying before -- if theyre correct that the fact 9 that theyve been paying orphaned shares from companies like 10 Johns Manville in the past and they dont have to anymore, if 11 theyre correct about those things the right number is back on 12 Demonstrative 48 was about 168 million nominal. If theyre

13 wrong and theyre on the hook for everything thats been going 14 out of the tort system, then the numbers 700 million nominal. 15 And theres an in between step which is they win one, I

16 but not that other and that was about 465 million nominal.

17 dont know which of those is right, thats not what I do, I can 18 quantify what it is under each of those potential outcomes. 19 Q 20 A So, its kind of a multiple choice? Well, I mean, I do this all the time when I testify in Theres usually a whole bunch of legal

21 coverage litigation.

22 determinations that need to be made, I quantify for the Court 23 what the numbers are under the various parties theories, that 24 way the Court can look at, once theyve made legal 25 determinations, which is the number to take from my analysis.

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Mullin - Cross/Sheppard 1 I dont know which of these is the right one under the law.

293 I

2 know that if the legal determinations come out in a particular 3 way Ive quantified the implication of that, and thats my 4 expertise is that quantification and it ends there. 5 Q Okay. And 700 million nominal was how much net present

6 value? 7 A Depends a lot on what interest rate you want to use, so I

8 mean again, I did that under three interest rates in 9 Demonstrative 48 that ran from at 3.45 percent 575 million up 10 to 8.2 percent where that was 445 million. 11 Q Okay. And the 700 nominal number that you came up with

12 was -- that wasnt based on this construct of implicit defense 13 costs and several share, is that right? 14 A Correct. Thats just saying if we evaluated each claim on

15 its merits in the tort system -- but its in the tort system 16 still, so it still has any transfers that are occurring, it 17 still has that economic incentive to settle earlier. In that

18 framework its $700 million nominal, you know 30 of that was 19 SBNDs, so 670 million for the pending and future claims. 20 Q As long as we disregard up to 40 percent of the claims in

21 the database, right? 22 A 23 Q Thats it. Which you did not specifically include in that calculation

24 right, Dr. Mullin? 25 A Again, I dont think were going to agree on the

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Mullin - Cross/Sheppard 1 include/excluded, thats clear to me. 2 Q Okay.

294

All right, well, Ill move on, I think Ive made my Dr. Mullin, do you believe that asbestos

3 point.

All right.

4 costs are likely to rise in the next five years or fall across 5 all industries -- indemnity payments? 6 A 7 Q 8 A (No audible response). Do you have an opinion on that? Well, thats -- what do you mean by asbestos costs, Im

9 just -- give me a little more of where youre going. 10 Q Indemnity payments in asbestos cases by insurers, do you

11 believe over the next five years that theyre going to go up 12 for them, or theyre going to stay stable or theyre going to 13 go down? 14 A 15 Q 16 A Well, by insurers? Yes. Insurers is a -- its a hard question because theres a

17 bunch of defendants out there right now that are out of 18 insurance, so everything they pay they pay themselves. Theres

19 other defendants that are in their primary insurance and both 20 their defense and indemnity and almost everythings getting 21 paid. So, insurance is traditionally paid between U.S.

22 insurers 30 to 40 percent of the losses has been going to U.S. 23 insurers and then foreign insurers pick up another large 24 percentage. Then thats moved around depending on who the

25 defendants are.

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Mullin - Cross/Sheppard 1 Q Im not really talking about allocation among insurers,

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2 Dr. Mullin, Im talking about actual indemnity payments by 3 insurers to plaintiffs. 4 A 5 Q By the insurance industry or by -Well, let me do it this way. A.M. Best Special Report,

6 are you familiar with that? 7 A 8 Q Im familiar with A.M. Best. Okay. And youre aware they put out special reports with

9 regard to asbestos and environmental liabilities, right? 10 A 11 Q Correct. And being in the industry Im sure its something that you

12 generally rely on, isnt that right? 13 A I mean, I know the people who do this analysis in the

14 actuary world, whether its Towers Watson, A.M. Best, Im 15 generally familiar. 16 Q Okay. So, if -- and I am referring now to -- I will mark Which for the

17 as ACC/FCR/Demonstrative 1003, Your Honor.

18 record is the -- I have the copies -- I dont have all the 19 copies up here. Hold on one second, Your Honor, I apologize I How dare I.

20 stole one from my associate. 21 22 23 24 25 Q

Your Honor, may I approach? THE COURT: Yes. Thank you.

THE WITNESS: THE COURT: All right.

Thank you.

Dr. Mullin, Ive handed you whats been marked

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Mullin - Cross/Sheppard

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1 as ACC/Demonstrative 1003, and thats the A.M. Best a special 2 report market review dated February 21st, 2011, you see that? 3 A 4 Q I do. Is that the A.M. Best that you said you were familiar with

5 and generally would consult in connection with your duties? 6 A In -- I dont really consult A.M. Best in my day-to-day

7 work, A.M. Best -- the work that I do in insurance is usually 8 focused on one particular policy holder and their litigation 9 with their insurers. 10 industry as a whole. A.M. Best is typically focused on the So, my day-to-day work isnt -- when Im

11 doing coverage litigation isnt really concerned with the whole 12 portfolio. 13 Q 14 A But, Ive read many A.M. Best reports in the past.

Respected in the industry -- in the insurance industry? You know, Ill let each person make their own judgment

15 call that way. 16 Q 17 A How about you make your own judgment call. Ive seen analyses by them that I think is well done, Ive So, it

18 seen analyses by them that I think are poorly done.

19 really depends on who at A.M. Best is doing the work and the 20 particular study. 21 Q Why dont you flip to Page 2 and Im going to just quickly

22 read a short passage there, down at the bottom in that last 23 paragraph starting in the middle as a result, you see that? 24 A 25 Q (No audible response). As a result average mesothelioma claim values appear to be

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Mullin - Cross/Sheppard 1 rising as the focus is shifted away from paying relatively 2 small sums in very large -- in a very large number of 3 asymptomatic non-malignant cases, do you see that? 4 A 5 Q I do. Okay. Do you agree with this that mesothelioma claims

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6 will be rising in the future? 7 A 8 Q Well, I -Im sorry, the average mesothelioma claim value. I

9 apologize. 10 A I think this is really -- if you start a little earlier,

11 and Ive -- Im familiar with this basic argument that A.M. 12 Best puts out -- if you go back a little bit its talking about 13 the tort reform initiatives -- Im just reading from the top of 14 the paragraph. Tort reform initiatives enacted in a number of

15 important states during the past five to ten years have 16 significantly reduced non-malignant filings in recent years 17 with more serious cases principally related to mesothelioma 18 reaching settlement. Thats the backdrop, theyre talking In my own analysis -- I mean,

19 about something that happened.

20 Ive given multiple presentations at conferences, theres a 21 general agreement -- myself, A.M. Best, Towers Watson, and 22 Jenni Biggs is usually the person that does it at Towers Watson 23 -- that says coming out of the bankruptcies and the reforms 24 there was a rise in average payments to mesothelioma claims 25 from 2000 to 2003, '04, '05, tended to peak in that period and

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Mullin - Cross/Sheppard 1 then started to come back down. 2 Thats in general the consensus opinion of looking

298

3 about it, theres a run up and then it came back, it didnt 4 come all the way back down and you know, so, thats something 5 that I do believe happened historically. I think thats what

6 this is -- its talking about those reforms and what was the 7 impact. But, over the last five years from 2005 or 2006

8 through 2010, 2012, theres actually been a bit of a decrease. 9 Q All right. Well, lets read the last sentence of that

10 paragraph.

As a result, the industry is likely to continue

11 incurring asbestos related losses for years to come, do you see 12 that? 13 A 14 Q 15 A I do. Do you agree with that statement, Dr. Mullin? I completely agree that theyre going to have asbestos

16 related losses probably to 2050-2060 as long as these claims 17 keep coming in the tort system. 18 Q Well, Im not sure thats exactly what it said, continue Okay.

19 -- Im sorry, youre right, thank you, Dr. Mullin. 20 All right.

Now, Dr. Mullin, you testified that one

21 of the things you did here was review the THAN TDPs, is that 22 right? 23 A I -- and all of that was a fairly hurried exercise, but

24 yes we got the -- we had the THAN data and had about a week to 25 turn around an analysis of it and we looked at the --

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Mullin - Cross/Sheppard 1 Q 2 A Its not a quiz, Dr. Mullin. -- disclosure statement and looked at the TDP in that

299

3 process. 4 Q Okay. And do you recall, Dr. Mullin, as part of your

5 review of the THAN materials what the amount that was used to 6 fund that trust? 7 A I mean, I remember generally, I dont remember from that

8 particular review, but its on the order of $900 million I 9 believe was the total funding amount. 10 Q 11 A Okay. And when was that trust funded, do you know?

Two and half, three years ago now, something of that

12 nature. 13 Q And it was originally funded as a 100 percent payment

14 trust, isnt that right? 15 A Yes, it was originally supposed to pay 100 cent

16 dollars -17 Q And thats actually -- excuse me -- reflected on one of

18 those charts that Mr. Evert showed you, right? 19 A Correct. I mean, in practice the initial claims that went

20 through the pre-petition review process by Verus and were 21 pre-approved got in general 100 cent dollars, the claimants 22 that were the future claims -- that claim in the future in 23 general are receiving 30 cent dollars. 24 Q Okay. And based upon your experience in asbestos trusts

25 and asbestos litigation, when a trust drops its payment

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Mullin - Cross/Sheppard 1 percentage by 70 percent, why do they do that? 2 A

300

Somebody did a very bad job forecasting, because they had I mean, the THAN trust is not indicative of

3 no change in data.

4 most, the same data that resulted in an estimate of 100 cent 5 dollars at the time they paid the pendings is the data upon 6 which a determination was made that you could only pay 30 cent 7 dollars to the futures because it didnt -- that determination 8 was made before claim processing started. 9 So, its an atypical example, so that one I think is Other trusts have

10 really attributable to poor forecasting.

11 different reasons, but thats the main one I would put on that 12 trust. 13 Q Well, I guess for me if youre paying 100 cents on a

14 dollar and then all of a sudden youre paying 30 cents because 15 youre afraid youre going to run out of money that means you 16 didnt have enough money to start with, isnt that right? 17 A Well, it means one of two things, if 900 million was the

18 correct number based on the liability that the company had it 19 either means the initial pending claims were paid too much, 20 they were paid more than they deserved, thats one explanation. 21 You know, so -- because the 900 million was based on the tort 22 system and it said, based on the tort system experience is my 23 understanding of the filings in that, that 900 would have been 24 sufficient to fund all the tort system payments. 25 It turns out it was insufficient to fund the trust,

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1 so it appears there was an misalignment between how the trust 2 operated and the tort system so the trust valued claims very 3 differently and hence ran out of money. It appears to be what

4 happened there, I mean Im not inside the operating of the 5 trust I can only draw inferences from afar. 6 Q No matter what happened, $900 million was not enough,

7 isnt that right? 8 A Well, 900 million is not enough to fund at the values

9 listed in the TDP based on the exposure criteria in the TDP the 10 total number of claims that they are deeming compensable. At

11 the same time, 900 million -- there were affidavits submitted 12 by the futures representative that 900 million was enough that 13 that covered all the tort value. 14 So, I dont know which was wrong, I dont have THANs

15 historical claims, I dont know if the wrong number was that 16 900 million wasnt enough in the tort system or if the trust 17 was designed poorly and paid substantially more than what the 18 tort system would have paid. I cant -- I dont have the data

19 to know -- all I know is those two were out of alignment. 20 Q Okay. Well, you reviewed the TDPs in the THAN case, right

21 -- in the THAN trust, right? 22 A 23 Q Yes. Did they appear to be out of the ordinary or different

24 from similar TDPs that you have seen in other trusts? 25 A Well, my problem is Ive never seen THANs historical

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Mullin - Cross/Sheppard 1 data, the trust -2 Q

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No, I was asking you about the TDPs, lets not talk about

3 the data, well get there in a second. 4 A 5 Q 6 A Okay. Lets talk about the TDPs, did they look any different? I mean, at a big picture level theyre the same. They

7 have the various disease categories that you typically see, 8 they have scheduled values and average values and all the bells 9 and whistles thats in a typical TDP, most of these look fairly 10 the same in structure these days. They have different values,

11 I mean the things that really vary is you go across the trusts 12 are what are the scheduled values and what are the average 13 values. 14 And thats the piece that I have no idea if those

15 were appropriate values, because I dont know the tort history, 16 and you cant really compare those across trusts because 17 theyre different defendants. They shouldnt -- they shouldnt

18 have the same value and Manville or USG or any other trust, 19 they should have the values thats appropriate based on that 20 defendant. 21 Q Okay. And I think you testified on direct that based upon

22 your review that THAN had before been Thomas Hayward, is that 23 right? 24 A 25 Q (No audible response). Well, lets just do it this way, THAN or its predecessor

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Mullin - Cross/Sheppard 1 was one of the suppliers of asbestos to Bondex, right? 2 A 3 Q 4 A 5 Q Correct, thats my understanding. Okay. That wasnt the only supplier, right?

303

No, I dont believe it was the only supplier. Okay. There was at least three others, isnt that

6 correct? 7 A I dont know the full history, thats not something that I

8 assessed. 9 Q Do you know what percentage THANs asbestos was compared

10 to the entire amount of asbestos that was bought by Bondex? 11 A 12 Q I do not. Okay. Would it surprise you, Dr. Mullin, -- or no, let me Hypothetically, lets say that THAN stopped

13 do it this way.

14 providing asbestos to Bondex after 1966 and that they got -15 and Bondex got its asbestos from another supplier from 1966 to 16 1978. 17 A 18 Q Okay. Would you agree with me that THANs liability in that case

19 is merely a subset of Bondexs potential liability? 20 A No. THAN supplied fiber to companies besides Bondex, so I

21 mean THANs liability is derivative of not just its fiber 22 supply to Bondex, but its fiber supply generically. And I

23 dont know THAN well enough to draw those types of inferences 24 to -- if its really -- if they only submitted one -- if one 25 percent of their fiber sales, to continue our hypothetical,

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Mullin - Cross/Sheppard

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1 were to Bondex, or Reardon or whatever entity, but if they only 2 sold one percent of their fiber to Bondex Id expect their 3 Bondex related liability to a relatively small portion of the 4 THAN total liability. In contrast if theyd sold 98 percent of

5 their fiber to Bondex, SPHC, whatever entity it may be youd 6 expect THAN to be a subset and not necessarily a subset, 7 theyre really -- its the same fibers, so theyre dividing up 8 the liability for those fibers. 9 Its not clear its a subset whether a jury finds the

10 fiber supplier more liable or they find the -- you know, 11 manufacturer of the drug compound more liable, its the same 12 fibers that made them sick and theyre going to share that 13 liability based on a jurys determination. 14 Q In a tort system though THAN and Bondex were treated as

15 joint tortfeasors werent they? 16 A At times, I mean there presumably are cases where THAN

17 wasnt named and Bondex was, presumably cases where THAN was 18 named, whether its from Kelly-Moore or some other place and 19 Bondex wasnt. So, sometimes they would be co-defendants and

20 other times they wouldnt be. 21 Q Okay. And if they were treated as co-defendants in the

22 tort system then they would each have their own several share, 23 right? 24 A I mean if you -- if they were in a several jurisdiction

25 and it went to trial and a jury came back they would assign --

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1 determine whether each was independently liable and if liable, 2 what was their share. 3 Q Okay. And under your construct here they would have their Thats what you spent all that time

4 own several share, right?

5 and effort trying to allocate, right? 6 A 7 Q (No audible response). They would each have their own several share, wouldnt THAN would have its several share, Bondex

8 they, wouldn't they?

9 would have its several share, right? 10 A Okay, each -- in theory, each company has some underlying

11 several share of the liability when they were a material 12 contributing factor. 13 Q Okay. Dr. Mullin, in terms of the database and the

14 documents that you reviewed in this case, you testified that 15 you asked for a claim sample of about 900 files, is that right? 16 A Id have to go look at the exact number at this point, I

17 think of it as about 1,000 and I know its probably closer to 18 900. 19 Q All right. And of those historical files you said you got

20 certain information regarding the debtors claim evaluation 21 process, is that correct? 22 A Well, I took what was available to me so that it did vary

23 by file. 24 Q Well, and thats I guess my question, what was made

25 available to you and how was that made available?

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Mullin - Cross/Sheppard 1 A So, I asked for the information that would allow me to

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2 construct the type of information and really to capture the 3 same type of information as it was being captured in the 4 personal -- the PIQs. I wanted to have comparable levels of

5 detail in the data, so that was really what I was looking for 6 was a way to get to the same type of information being 7 requested in the PIQs. 8 Q 9 A And you made that request to counsel? I made counsel -- yes, I mean I didnt have direct access,

10 I made a request to counsel with -- I gave them a list of files 11 and I requested that they try to find the information 12 associated with those claimants. 13 Q So, you didnt review the entire file, you just reviewed

14 whatever counsel sent you? 15 A Well, I asked for the file and I asked at times -- I mean,

16 theres a -- some of these are old, I mean I asked for files 17 that are from back in 1990s. Its extremely unlikely that

18 every document that had ever been generated in accordance with 19 that case was still available. So, you know, Im sure what got

20 produced was a subset of what originally existed, but I asked 21 for that set of information to try to extract work history 22 information, exposure allegations. 23 Q Did you give them a list or some kind of specific

24 instruction as to what types of documents you wanted to see or 25 did you just let them decide?

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Mullin - Cross/Sheppard 1 A I told them what, in my experience, has always been the I mean, over the course of my career at this

307

2 most useful.

3 point Ive reviewed -- or my staff I havent done it all 4 personally -- has reviewed over 10,000 claim files. I mean, in

5 insurance coverage litigation insurers almost always audit the 6 underlying claim files. So, youre sampling between 300 and And so, Im

7 1,000 claim files on almost every coverage case.

8 used to doing that kind of work, I followed the same procedures 9 I would follow in that litigation in terms of constructing a 10 random sample that would be representative and the same 11 procedures in terms of how that information got extracted by 12 the team that was reviewing the information. 13 Q All right. So, you didnt review the files and you

14 reviewed whatever they gave you, isnt that the answer? 15 A 16 Q 17 A Well, I clearly reviewed what was produced to me. Okay. I mean, I couldnt have reviewed anything that wasnt

18 produced to me, thats definitely true. 19 Q And you dont know what was not produced to you? Thats

20 the point. 21 A I can never know what wasnt produced to me, thats

22 unknowable to me. 23 Q Okay. And Im sorry to jump around, I just had one more In your supplemental report

24 area on THAN before we left it.

25 you say that you thought that there was a percentage of

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Mullin - Cross/Sheppard 1 under-reporting of THAN claims, correct? 2 A 3 Q 4 A Correct, I mean you can look -On the PIQs?

308

You can look empirically and compare what was stated in a

5 PIQ versus what the THAN trust -- the submissions they said 6 they had received. 7 Q And it was -- you said it was somewhere between 11 and 25

8 percent depending? 9 A I mean, its likely to fall in that range, so if we assume

10 that all the submissions to the THAN trust -- all about 1500 11 that occurred prior to the submissions of the PIQs. That may If

12 not be true, but if you assume that, then its 25 percent.

13 I constrict it to just the people who also voted, so they had 14 THAN claims from a long time ago, theres at least 11 percent 15 of those. So, the truth is probably somewhere in the middle,

16 its 25 percent low based on whos filed a THAN claim as of 17 today, it may have been less than that as of who had filed one 18 as of the time the PIQs were submitted. 19 Q Okay. And are you insinuating that there was some

20 intentional misreporting or under-reporting here, Dr. Mullin? 21 A Im just stating a factual conclusion. I mean, I dont

22 have insight into why for this 10 to 25 percent of claims its 23 not on the PIQ. You know, I have no -- I just dont have an

24 opinion about why -25 Q Well, lets explore that.

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Mullin - Cross/Sheppard 1 A 2 Q 3 A 4 Q 5 A 6 Q -- but, factually it happened. Wasnt THAN a pre-pack, bankruptcy? Yes. Okay. I wont make you define that, I know what you mean.

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And in pre-packs generally you have a set of pre-petition

7 claims, correct? 8 A 9 Q Correct. And then you have post-petition claims, right? And its

10 not unusual for the pre-petition claims to be paid out of the 11 trust, isnt that true? 12 A 13 Q 14 A 15 Q For the pre-petition claims? Mm-mm. I mean, its a common outcome. Okay. So, isnt it possible that on the PIQ form they

16 didnt check that they made a claim to a trust because they 17 had, in fact, settled the case before the trust existed? 18 A 19 Q 20 A Well -Wouldnt that account for some of this under-reporting? No. If -- theres about 1500 claims that the trust said

21 they received a claim from this individual, thats the set Im 22 looking at. These are individuals that did get a check or

23 submit a claim to the THAN trust, thats what the THAN trust 24 gave back to me was the ones that matched to their records. 25 Q Okay. And what Im suggesting to you, Dr. Mullin, is that

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Mullin - Cross/Sheppard 1 we had two categories on our PIQ, 5-a and 5-b.

310 5-a was a trust

2 claim, 5-b -- and I dont remember which it was, but one was 3 payments from trust, one was payments from co-defendants, 4 right? 5 A 6 Q Yes. So, they actually could have listed it on the

7 co-defendants and not on the trusts side, isnt that true? 8 A I included those. So, when I say what was there -- when

9 Im looking at the shortfall, if they indicated they had a 10 claim against THAN they may have filed a claim against them in 11 the tort system and THANs on their complaint if its a claim 12 that was pre-petition for THAN, and if that was the case I 13 didnt count that as not having disclosed the THAN claim. That

14 was, okay they disclosed this as tort claim instead of a trust 15 claim, but they still disclosed that they had a claim against 16 THAN, I wasnt -- Im not hanging on technicalities in that 17 regard. 18 Q 19 Okay. MR. SHEPPARD: Your Honor, Im kind of at a natural

20 stopping point. 21 THE COURT: All right. Everyone ready for 8:30

22 tomorrow morning?

Dr. Mullin, please dont discuss your

23 testimony with anyone since youre still not finished. 24 25 THE WITNESS: THE COURT: I understand. Thank you, Your Honor.

All right.

Well be in recess until

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Mullin - Cross/Sheppard 1 8:30. 2 Mr. Evert? MR. EVERT:

311

Your Honor, just letting the Court know

3 that I dont know what this is -- what is Dr. Andersons 4 schedule tomorrow can he wait -5 6 THE COURT: MR. EVERT: Please turn on your microphone. Oh, Im sorry. Can he wait until Cross

7 is finished? 8 MR. HOUFF: How many days is it going to be, I mean

9 Ive had -- the answer is he can wait a reasonably period of 10 time, I dont have to put him on first, as long as I can get 11 him off tomorrow. 12 13 guess. 14 15 16 17 18 MR. EVERT: Okay. I was just going to -MR. SHEPPARD: I have a half hour, 45 minutes, I

MR. SHEPPARD: MR. EVERT: MR. DORSEY: MR. EVERT:

I dont know if these guys --

Okay. Probably about the same, half hour -Okay, then we -- I was just going to

19 advise the Court we may need to interrupt Dr. Mullins 20 testimony again, but hopefully we wont have to if thats too 21 much to -22 23 MR. DORSEY: THE COURT: Well work it out. All right. Its fine, I think its less If he

24 convenient for Dr. Mullin than it is for everybody else.

25 can live with it, I suppose everybody can live with it so.

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Mullin - Cross/Sheppard 1 MR. EVERT:

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Were intending to reserve some time for

2 rebuttal with Dr. Mullin, Your Honor, so hes got to be here 3 all week anyway, so -4 5 THE COURT: MR. EVERT: Maybe he can sleep in tomorrow then? Well then maybe thats what hes looking

6 for, I havent thought about that. 7 8 9 he -10 11 12 MR. SHEPPARD: MR. EVERT: MR. PIETRO: The time for today, guys? THE COURT: MR. PIETRO: All right. Let him go first, I think

Oh, the time announcement. All right the time. The ACC/FCR had 12

13 hours and 7 minutes left, the debtors have 9 hours and 17 14 minutes left. 15 16 17 18 19 20 21 22 23 24 25 THE COURT: MR. PIETRO: THE COURT: MR. EVERT: THE COURT: Nine hours and what, Im sorry. Nine hours and 17 minutes. Minutes left? Remaining, yes. Okay, thank you. Thank you, Your Honor.

UNIDENTIFIED SPEAKER:

* * * * *

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313 C E R T I F I C A T I O N We, AMY L. RENTNER, WENDY ANTOSIEWICZ, KELLI PHILBURN, and ANDREA FOY, 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/ Amy L. Rentner AMY L. RENTNER

/s/ Wendy Antosiewicz WENDY ANTOSIEWICZ

/s/ Kelli Philburn KELLI PHILBURN

/s/ Andrea Foy ANDREA FOY J&J COURT TRANSCRIBERS, INC. DATE: January 17, 2013

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