Western Asbestos Co.

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	No. 02-46284 T
Chapter 11
WESTERN ASBESTOS COMPANY,
Debtor.
_______________________________/
MEMORANDUM OF DECISION RE MOTION TO APPROVE AND SETTLE WESTERN
ASBESTOS SETTLEMENT TRUST’S SIXTH ANNUAL REPORT AND ACCOUNTING
The motion (the “Motion”) to approve and settle the Sixth Annual
Report and Accounting, Audited Financial Statements, and Claim Report
(the “Sixth Annual Report and Accounting”), filed by the Trustees of
the 	Western 	Asbestos 	Settlement 	Trust 	(the 	“Trust” 	and 	the
“Trustees,” respectively) came on for hearing on June 15, 2010. 	The
Trustees 	appeared 	through 	counsel. 	No 	objections 	were 	filed 	with
respect to the motion. 	However, Michael J. McDermott (“McDermott”),
a Trust beneficiary, appeared at the hearing, pro se, and expressed
dissatisfaction with the way the Trust was being operated. 	The Court
directed 	McDermott 	to 	file 	and 	serve 	a 	written 	statement 	of 	his
complaints 	(the 	“McDermott 	Statement”) 	and 	gave 	the 	Trustees 	a
Signed: July 27, 2010
________________________________________
LESLIE TCHAIKOVSKY
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
July 27, 2010
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
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deadline for responding to it. 	The hearing was continued pending the
Court’s review of these filings.
THE McDERMOTT STATEMENT
McDermott’s 	first 	complaint 	was 	that 	both 	the 	Trust 	and 	the
attorneys 	(by 	which 	he 	apparently 	means 	both 	the 	Trust’s 	attorneys
and 	the 	beneficiaries’ 	attorneys) 	had 	failed 	to 	explain 	adequately
to 	them, 	in 	terms 	understandable 	by 	a 	lay 	person, 	how 	the 	Trust
operates, its life span, and what they may expect to receive from it
and when. 	McDermott noted that clear information on these issues may
be 	important 	to 	the 	beneficiaries 	for 	tax 	and 	estate 	planning
purposes.
McDermott’s 	second 	complaint 	was 	that, 	although 	the
beneficiaries 	apparently 	will 	not 	receive 	full 	payment 	of 	their
claims, 	other 	people 	who 	are 	not 	beneficiaries 	appear 	to 	be 	making
a 	lot 	of 	money 	administering 	and 	working 	for 	the 	Trust. 	McDermott
suggested 	that 	these 	jobs 	could 	have 	gone 	to 	beneficiaries. 	He
suggested that anyone administering or working for the Trust has an
inherent conflict of interest in that they have an incentive not to
terminate 	the 	Trust. 	He 	argued 	that 	this 	inherent 	conflict 	of
interest 	demanded 	more 	transparency 	and 	full 	disclosure 	to
beneficiaries with respect to the operation of the Trust.
McDermott’s 	third 	complaint 	was 	that 	the 	costs 	shown 	on 	the
Trust’s 	balance 	sheets 	were 	not 	broken 	down 	in 	a 	manner 	that 	was
useful 	for 	an 	unsophisticated 	beneficiary. 	He 	suggested 	that 	the
children 	of 	the 	beneficiaries 	could 	be 	given 	jobs 	for 	the 	Trust
before the money runs out.
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McDermott’s fourth complaint was that, although the legal fees
paid by the Trust run into many millions of dollars, there does not
appear 	to 	be 	any 	breakdown 	of 	what 	was 	paid 	for 	and 	at 	what 	rate.
He 	contended 	that 	the 	beneficiaries 	are 	paying 	for 	two 	sets 	of
attorneys: 	the 	attorneys 	who 	represented 	them 	initially 	and 	those
representing 	the 	Trust. 	Yet, 	the 	beneficiaries 	are 	not 	even 	told
what 	hourly 	rates 	are 	being 	charged 	for 	these 	legal 	services. 	He
complained that the beneficiaries’ own attorneys are being paid 25%
of the distributions for doing nothing but redistributing the payouts
once 	every 	few 	years. 	He 	stated 	that 	he 	found 	it 	insulting 	and
called 	it 	“double 	dipping” 	that, 	in 	addition, 	the 	attorneys
representing the Trust are also being paid legal fees. 	He described
this as a long term windfall for law firms.
Finally, 	he 	asked 	the 	Court 	to 	investigate 	what 	could 	be 	done
to 	see 	that 	the 	beneficiaries 	of 	the 	Trust 	receive 	the 	maximum
benefit from the Trust, including employment where practicable. 	He
reiterated his desire for information about when the Trust would be
resolved so that beneficiaries who will not receive a full payout may
at least receive a tax benefit during their own lifetimes.
THE TRUSTEES’ RESPONSE
Preliminarily, 	the 	Trustees 	noted 	that 	McDermott’s 	complaints
do not appear to be an objection to the motion to approve and settle
the Sixth Annual Report and Accounting. 	Nevertheless, they undertook
to 	respond 	to 	McDermott’s 	complaints 	and 	questions 	about 	the
operation of the Trust.
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With respect to McDermott’s first complaint, about the lack of
clear 	communication 	concerning 	the 	operation 	and 	anticipated 	life
span 	of 	the 	Trust, 	the 	Trustees 	attempted 	to 	provide 	the 	relevant
information so as to remedy this perceived lack. 	They explained the
purpose 	of 	the 	Trust 	and 	cited 	the 	law 	that 	governed 	its 	creation.
They explain that, because it is uncertain when all diseases caused
by 	exposure 	to 	asbestos 	will 	be 	discovered, 	the 	life 	span 	of 	the
Trust cannot be predicted with certainty. 	However, according to the
experts who testified in connection with the creation of the Trust,
the 	Trust 	is 	expected 	to 	continue 	for 	40 	to 	50 	years 	from 	its
inception.
The Trustees explained that the Trust will terminate ninety days
after all claims submitted have been paid or disallowed, there have
been 	twelve 	consecutive 	months 	during 	which 	no 	new 	asbestos 	claims
have been filed, and the Trustees determine that it is unlikely that
any 	new 	claims 	will 	be 	submitted. 	If 	all 	claims 	have 	been 	paid 	in
full 	and 	the 	expenses 	of 	the 	Trust 	have 	been 	paid, 	any 	money
remaining is required to be paid to a charitable organization which,
if 	practicable, 	is 	dedicated 	to 	research 	regarding 	or 	treatment 	of
asbestos related diseases.
The Trustees explained that the law governing the Trust requires
reasonable assurances that all claimants, including claimants whose
symptoms 	surface 	in 	the 	future, 	receive 	distributions 	equaling
substantially the same percentage of their claims. 	This percentage
has 	currently 	been 	estimated 	to 	be 	44%. 	However, 	the 	percentage
payout 	may 	vary 	depending 	on 	the 	number 	and 	types 	of 	claims
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submitted. 	In addition, there is still ongoing litigation from which
additional 	Trust 	proceeds 	may 	be 	recovered. 	At 	present 	they 	are
unable to predict the outcome of the litigation or how much the Trust
might receive if the litigation is successful.
The 	Trustees 	stated 	that 	the 	recent 	turmoil 	in 	the 	financial
markets 	has 	impacted 	somewhat 	the 	value 	of 	the 	Trust’s 	assets.
However, 	it 	has 	not 	to 	date 	required 	them 	to 	adjust 	the 	estimated
percentage payout to a lower number. 	They noted that the estimated
payment 	percentage 	is 	subject 	to 	periodic 	review 	at 	the 	request 	of
the Trust Advisory Committee and/or Futures Representative. 	The most
recent 	review 	was 	conducted 	in 	2010 	and 	resulted 	in 	an 	increase 	in
the estimated percentage from 40% to 44%.
The Trustees noted that the Trust is not in a position to advise
or assist beneficiaries with tax or estate planning. 	Some claimants
have 	asked 	for 	information 	to 	be 	provided 	to 	the 	Internal 	Revenue
Service to assist them in connection with their tax issues and, when
possible, the Trustees have provided them with this information.
With 	respect 	to 	McDermott’s 	second 	complaint, 	suggesting 	that
the beneficiaries or their children should be employed by the Trust,
the Trustees responded that this is not feasible. 	The Trustees noted
that 	the 	Trust 	has 	fiduciary 	obligations 	to 	both 	the 	present
beneficiaries 	and 	to 	future 	beneficiaries. 	There 	is 	a 	tension
between 	those 	holding 	present 	claims 	and 	those 	unknown 	individuals
who may discover in the future that they also have claims. 	Present
beneficiaries 	or 	their 	children 	would 	have 	a 	conflict 	of 	interest
with 	respect 	to 	the 	amount 	of 	trust 	assets 	that 	should 	be 	paid 	out
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now 	as 	compared 	to 	being 	retained 	for 	the 	benefit 	of 	future
claimants. 	This 	would 	preclude 	them 	from 	working 	for 	the 	Trust 	in
a fiduciary capacity.
The 	Trustees 	responded 	to 	McDermott’s 	suggestion 	that 	the
employees and professionals working for the Trust have a conflict of
interest 	themselves 	so 	that 	the 	Trust 	should 	have 	greater
transparency. 	They 	noted 	that 	the 	Trust 	provides 	information
concerning 	its 	operations, 	including 	its 	expenses, 	annually 	to 	the
Court 	and 	other 	interested 	parties. 	Its 	report 	is 	posted 	on 	the
Trust’s 	website 	and 	can 	be 	compared 	to 	other 	similar 	reports 	filed
by 	other 	asbestos 	trusts. 	If 	McDermott 	has 	any 	specific 	concerns
about an entry in one these reports, he can raise them at any time.
The 	Trust 	employs 	accountants 	and 	auditors 	that 	monitor 	the
investment 	of 	trust 	funds, 	the 	payment 	of 	expenses, 	and 	the
administration 	of 	claims. 	The 	Trust 	endeavors 	to 	disclose 	the
results of financial statements in a meaningful way to beneficiaries
and 	will 	continue 	to 	attempt 	to 	improve 	this 	process 	for 	greater
transparency.
Finally, the Trustees took issue with McDermott’s complaint that
the 	legal 	fees 	being 	paid 	by 	the 	Trust 	are 	too 	high 	and 	constitute
“double dipping” since their own attorneys are already receiving 25%
of the distributions for doing very little at this point. 	They noted
that 	the 	beneficiaries’ 	attorneys 	represent 	the 	beneficiaries.
Different 	attorneys 	are 	required 	for 	the 	various 	constituencies 	of
the 	Trust, 	whose 	interests 	diverge: 	i.e., 	the 	Trust, 	the 	Trust
Advisory 	Committee, 	and 	the 	Futures 	Representative. 	Moreover, 	the
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Trustees note that the beneficiaries may have entered into agreements
with their own attorneys permitting their attorneys to receive more
than 	25% 	of 	their 	distributions. 	The 	Trust 	restricted 	the
beneficiaries’ attorneys to retaining 25% of the distribution. 	The
Trustees 	recognized 	the 	high 	cost 	of 	operating 	the 	Trust 	and,
consistent with their fiduciary duty to claimants, asserted that they
at 	all 	times 	attempt 	to 	minimize 	those 	costs. 	Attached 	to 	the
response 	as 	Exhibit 	C 	is 	a 	list 	of 	the 	Trust 	Representatives 	and
Professionals with their current hourly rates.
CONCLUSION
The Court agrees with the Trustees that McDermott’s complaints
are not, strictly speaking, an objection to the Sixth Annual Report
and 	Accounting. 	The 	Court 	also 	concludes 	that 	the 	Trustees’
responses 	to 	McDermott’s 	complaints 	are 	appropriate 	and 	adequate.
The uncertainties involving the Trust and its operations and expenses
incurred 	in 	its 	operation 	are 	unavoidable 	given 	the 	nature 	of 	the
Trust 	and 	its 	various 	constituencies. 	The 	Trust 	is 	a 	complex
mechanism, which must deal carefully with large sums of money for the
benefit 	of 	numerous 	third 	parties 	with 	varying 	interests.
McDermott’s complaint about “double dipping” and his suggestion that
the 	Trust 	should 	employ 	beneficiaries 	or 	their 	children 	are 	simply
misguided. 	The 	Court 	will 	approve 	the 	Sixth 	Annual 	Report 	and
Accounting and vacate the continued hearing on the motion. 	Counsel
for 	the 	Trustees 	is 	directed 	to 	submit 	a 	proposed 	form 	of 	order 	in
accordance with this decision.
END OF DOCUMENT
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COURT SERVICE LIST
Michael J. McDermott
5598 Corte Sonora
Pleasanton, CA 94566
ALL RECIPIENTS
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