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08-02-13 - Garlock - Vol 10 PDF

The document is a transcript from an estimation trial before Judge George R. Hodges in the United States Bankruptcy Court for the Western District of North Carolina on August 2, 2013 regarding Garlock Sealing Technologies LLC. It lists appearances by counsel for the debtors, interested parties including Coltec Industries Inc., and creditor committees. It also indexes exhibits and witnesses, including the direct examination of Dr. Jorge Gallardo-Garcia, an economist called as an expert witness by the debtors.

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Kirk Hartley

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0% found this document useful (0 votes)

200 views264 pages

08-02-13 - Garlock - Vol 10 PDF

Uploaded by

Kirk Hartley

We take content rights seriously. If you suspect this is your content, claim it here.

Available Formats

Download as PDF, TXT or read online on Scribd

You are on page 1/ 264

1

UNITED STATES BANKRUPTCY COURT

FOR THE WESTERN DISTRICT OF NORTH CAROLINA
CHARLOTTE DIVISION

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3
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7

IN RE:

)
)
GARLOCK SEALING TECHNOLOGIES )
LLC, et al,
)
)
Debtors.
)
_____________________________)

No. 10-BK-31607
VOLUME X
FULL DAY SESSION

8
TRANSCRIPT OF ESTIMATION TRIAL
BEFORE THE HONORABLE GEORGE R. HODGES
UNITED STATES BANKRUPTCY JUDGE
AUGUST 2, 2013

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10
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APPEARANCES:

On Behalf of Debtors:

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15

GARLAND S. CASSADA, ESQ.

Robinson Bradshaw & Hinson, PA
101 North Tryon Street, Suite 1900
Charlotte, North Carolina 28246

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18
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20

JONATHAN C. KRISKO, ESQ.

Robinson Bradshaw & Hinson PA
101 North Tryon Street, Suite 1900
Charlotte, North Carolina 28246
LOUIS ADAM BLEDSOE, III, ESQ.
Robinson Bradshaw & Hinson PA
101 North Tryon Street, Suite 1900
Charlotte, North Carolina 28246

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25

RICHARD C. WORF, ESQ.

Robinson Bradshaw & Hinson, PA
101 North Tryon Street, Suite 1900
Charlotte, North Carolina 28246

APPEARANCES (Continued):

On Behalf of the Debtors:

3
4

RAY HARRIS, ESQ.

Schachter Harris, LLP
400 East Las Colinas Blvd.
Irving, Texas 75039

5
6
7
8
9

CARY SCHACHTER, ESQ.

Schachter Harris, LLP
400 East Las Colinas Blvd.
Irving, Texas 75039
C. RICHARD RAYBURN, JR., ESQ.
Rayburn Cooper & Durham, PA
227 West Trade Street, Suite 1200
Charlotte, North Carolina 28202

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11
12
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SHELLEY KOON ABEL, ESQ.

Rayburn Cooper & Durham, PA
227 West Trade Street, Suite 1200
Charlotte, North Carolina 28202
ALBERT F. DURHAM, ESQ.
Rayburn Cooper & Durham, PA
227 West Trade Street, Suite 1200
Charlotte, North Carolina 28202

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18
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ROSS ROBERT FULTON, ESQ.

Rayburn Cooper & Durham, PA
227 West Trade Street, Suite 1200
Charlotte, North Carolina 28202
JOHN R. MILLER, JR., ESQ.
Rayburn Cooper & Durham, PA
227 West Trade Street, Suite 1200
Charlotte, North Carolina 28202

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ASHLEY K. NEAL, ESQ.

Rayburn Cooper & Durham, PA
227 West Trade Street, Suite 1200
Charlotte, North Carolina 28202
WILLIAM SAMUEL SMOAK, JR., ESQ.
Rayburn Cooper & Durham, PA
227 West Trade Street, Suite 1200
Charlotte, North Carolina 28202

APPEARANCES (Continued.):

On Behalf of Interested Parties:

Carson Protwall LP:

4
5

JULIE BARKER PAPE, ESQ.

Womble Carlyle Sandridge & Rice, PLLC
P.O. Drawer 84
Winston-Salem, North Carolina 27102

6
Coltec Industries Inc.:
7
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DANIEL GRAY CLODFELTER, ESQ.

Moore & Van Allen, PLLC
100 North Tryon Street, Suite 4700
Charlotte, North Carolina 28202-4003
HILLARY B. CRABTREE, ESQ.
Moore & Van Allen, PLLC
100 North Tryon Street, Suite 4700
Charlotte, North Carolina 28202-4003

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MARK A. NEBRIG, ESQ.

Moore & Van Allen, PLLC
100 North Tryon Street, Suite 4700
Charlotte, North Carolina 28202-4003
EDWARD TAYLOR STUKES, ESQ.
Moore & Van Allen, PLLC
100 North Tryon Street, Suite 4700
Charlotte, North Carolina 28202-4003

17
Creditor Committees:
18
Official Committee of Asbestos Personal Injury Claimants:
19
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LESLIE M. KELLEHER, ESQ.

Caplin & Drysdale, Chartered
One Thomas Circle NW, Suite 1100
Washington, DC 20005
JEANNA RICKARDS KOSKI, ESQ.
Caplin & Drysdale, Chartered
One Thomas Circle NW, Suite 1100
Washington, DC 20005

APPEARANCES (Continued.):

Official Committee of Asbestos Personal Injury Claimaints:

3
4

JEFFREY A. LIESEMER, ESQ.

Caplin & Drysdale, Chartered
One Thomas Circle NW, Suite 1100
Washington, DC 20005

5
6
7
8
9

KEVIN C. MACLAY, ESQ.

Caplin & Drysdale, Chartered
One Thomas Circle NW, Suite 1100
Washington, DC 20005
TODD E. PHILLIPS, ESQ.
Caplin & Drysdale, Chartered
One Thomas Circle NW, Suite 1100
Washington, DC 20005

10
11
12
13
14

TREVOR W. SWETT, ESQ.

Caplin & Drysdale, Chartered
One Thomas Circle NW, Suite 1100
Washington, DC 20005
JAMES P. WEHNER, ESQ.
Caplin & Drysdale, Chartered
One Thomas Circle NW, Suite 1100
Washington, DC 20005

15
16
17
18
19

ELIHU INSELBUCH, ESQ.

Caplin & Drysdale, Chartered
600 Lexington Avenue, 21st Floor
New York, New York 10022
NATHAN D. FINCH, ESQ.
Motley Rice, LLC
1000 Potomac Street, NW, Suite 150
Washington, DC 20007

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22
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25

GLENN C. THOMPSON, ESQ.

Hamilton Stephens Steele & Martin
201 South College Street, Suite 2020
Charlotte, North Carolina 28244-2020
TRAVIS W. MOON, ESQ.
Moon Wright & Houston, PLLC
227 West Trade Street, Suite 1800
Charlotte, North Carolina 28202

APPEARANCES (Continued.):

Official Committee of Asbestos Personal Injury Claimaints:

3
4

RICHARD S. WRIGHT, ESQ.

Moon Wright & Houston, PLLC
226 West Trade Street, Suite 1800
Charlotte, North Carolina 28202

5
6
7
8
9

ANDREW T. HOUSTON, ESQ.

Moon Wright & Houston, PLLC
227 West Trade Street, Suite 1800
Charlotte, North Carolina 28202
SCOTT L. FROST, ESQ.
Waters Kraus, LLP
222 North Sepulveda Boulevard, Suite 1900
El Segundo, California 90245

10
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JONATHAN A. GEORGE, ESQ.

Waters Kraus, LLP
3219 McKinney Avenue
Dallas, Texas 75204
Future Asbestos Claimaints:
KATHLEEN A. ORR, ESQ.
Orrick, Herrington & Sutcliffe, LLP
1152 15th Street, N.W., Columbia Center
Washington, DC 20005-1706

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JONATHAN P. GUY, ESQ.

Orrick, Herrington & Sutcliffe, LLP
1152 15th Street, N.W., Columbia Center
Washington, DC 20005-1706

Official Committee of Unsecured Creditors:

DEBORAH L. FLETCHER, ESQ.

FSB Fisher Broyles, LLP
6000 Fairview Road, Suite 1200
Charlotte, North Carolina 28210

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2609
1

I N D E X
DEBTORS' WITNESSES:

PAGE

2
3
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6

JORGE RAUL GALLARDO-GARCIA

Direct Examination By Mr. Worf
Voir Dire Examination By Mr. Guy
Continued Direct Examination By Mr. Worf
Cross-Examination By Mr. Guy
Cross Examination By Mr. Wehner
Redirect Examination By Mr. Worf

2611
2617
2619
2662
2696
2699

7
8
9

CHARLES BATES
Direct Examination By Mr. Cassada

* * * * * *

E X H I B I T S

PLAINTIFF'S EXHIBITS:
NO.

2702

OFFERED

ADMITTED

13
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23
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25

992 .................................................2863
993 .................................................2863
996 .................................................2863
1000 ................................................2863
1274 ................................................2863
1305 ................................................2863
1320 ................................................2863
8002 ................................................2660
8003 ................................................2661
8004 ................................................2662
8005 ................................................2863
8006 ................................................2863
* * * * * *

2610
1
2

P R O C E E D I N G S
AUGUST 2, 2013, COURT CALLED TO ORDER 9:30 A.M.:

3
4

MR. GUY:

Your Honor, I have a quick housekeeping

item.

THE COURT:

MR. GUY:

Yes.

I know that your mind is open on the issue

as to whether we need more time.

we try to get an answer on that maybe at the end of today is

because if there's the possibility of more time, more time

will be taken in the following week so that we'll need it.

The reason I would ask that

And the problem we have, Your Honor, is that we have

throughout this case been presenting our case on the

presumption that we have to fit it within the time allotted by

the Court.

THE COURT:

I'm hopeful that's what we'll be able to

do.

If we have more time, we're talking about one more day.

We don't have any more time, really, other than we do have

Monday, but that's the only time we can find a place to do

anything, so.

MR. GUY:

Thank you, Your Honor.

THE COURT:

And in fact, we don't really have

Monday.

may be possible to move it.

MR. GUY:

I've got other stuff scheduled on Monday, but it's --

With the right will, it can be done, Your

Honor.
Laura Andersen, RMR 704-350-7493

2611

DIRECT - GALLARDO-GARCIA
1

THE COURT:

I hope we can do it, and we'll try to do

it.

But let's see where we are at the end of the day.

we'll maybe know a bit more about that.

MR. GUY:

MR. WORF:

THE COURT:

MR. WORF:

experts.

Then

Thank you, Your Honor.

Good morning, Your Honor.
Good morning.
Today we get to the Debtor's estimation

The debtors call Dr. Jorge Gallardo-Garcia.

THE COURT:

Okay.

JORGE RAUL GALLARDO-GARCIA,

Being first duly sworn, was examined and testified as follows:

DIRECT EXAMINATION

BY MR. WORF:

Good morning, Dr. Gallardo-Garcia.

Good morning.

Can you please state your name for the record?

My name is Jorge Raul Gallardo-Garcia.

Could you please describe your education for the court?

Yes.

Pennsylvania.

same university.

and raised in Mexico City, and I have studies from the

Instituto of Technologico Autonomo De Mexico.

Master's in economics, Bachelor's degree in economics, and a

Bachelor's degree in business administration.

I hold a Ph.D in economics from the University of

I also have a Master's in economics from the
Also I'm originally from Mexico.

I was born

I have a

Laura Andersen, RMR 704-350-7493

DIRECT - GALLARDO-GARCIA

2612

And you have prepared these slides to help illustrate

your testimony today?

Yes, I did.

What is your current position?

I'm manager at Bates White, LLC.

And you work in Washington, DC?

Yes.

What would you describe as your specialty?

Well, my specialties both in general economics, it's

basically modeling human or individual behavior through

economic models.

models, using individual level data.

done on those topics.

somehow illegitimate or ill-advised to look at data about

individuals when you're performing an aggregate estimation.

As an economist and econometrician, do you agree with that?

And then the estimation of those economic

My research has been

We heard from Mr. Swett in opening argument that it is

No.

I think that's exactly -- it's quite the contrary.

When one is trying to model individual behavior, or one

is trying to do an aggregate forecast of any kind, if you have

available disaggregated data, there's no reason to lose or to

disregard all the detail in the data to come to an aggregate

answer.

24
25

You can always model the individual's decisions and the

individual decisions related to economics and develop economic
Laura Andersen, RMR 704-350-7493

2613

DIRECT - GALLARDO-GARCIA
1

models, based on individual data, and then transport those

decisions or those estimates to the aggregate population.

where that is done?

policy, one wants to test a policy.

social program in a given town or something.

my research -- on my past research, for example, in the first

two papers, what we were doing is, we were evaluating a

Do you have an example of that from the policy arena,

Yes.

So, for example, when one wants to do some type of

For example, such as a
So as I have on

program in which families or parents of children will get some

amount of money, if they want -- if they sent their children

to school, and if they took their children to a health clinic.

Now this program was a huge program.

It was to serve

more than 5 million families.

that was being tested to be applied in the whole country.

This is -- all of this is in Mexico.

program has been applied in all of Latin America and some

places in the U.S. are applying this same model.

point of the program was to see if children will benefit from

the government paying their parents to send them to school.

And it was a type of program

But since then, this

But the

So what we did in these two papers was to basically

measure what was the benefit of the children of the parents

getting that money in terms of number of years of education,

attrition rates from going to school.

grades, et cetera.

There was a section on

Laura Andersen, RMR 704-350-7493

DIRECT - GALLARDO-GARCIA
1

2614

So the point was, that by aggregate, if you -- if we have

aggregated the data, and tried to measure the impact of the

program, we will have lost the detail of who the impact was

going to -- in which type of the -- in which subpopulation the

impact was going to be stronger.

So by doing an analysis using disaggregated data, we were

able to know what were the target populations and who

benefited from the program the most, versus the populations

that will not benefit as much by the program.

And that was only possible because this was a study that

could be done with the disaggregated data, at the individual

level, as we have in the Garlock analytical database that we

are going to talk about later.

talking about data on the 5 million individuals who were

participants in the program?

thousands of people -- well, thousands of families that have

at the same time, thousands of children.

the children and on the families' characteristics.

listed on the slide entitled, "Research Articles"?

publication which is a result of our study that was published

in the Education Economics, which is a peer-reviewed journal.

So by disaggregated data, just to be clear, you're

This was a sample of those 5 million, but it was

And we had data on

Now, you were a co-author of the two papers that are

Yes.

The first -- the top publication, that's just a

Laura Andersen, RMR 704-350-7493

DIRECT - GALLARDO-GARCIA

2615

The second paper, or the second study, is the report that

the team that I was working, submitted to the Mexican Congress

when they were trying to evaluate whether this program was

going to be continued or not.

data.

in 2005, and to this day the program continues in Mexico.

slide?

So this was using the 2004

We did that study probably in 2005 -- or yeah, probably

And what is the third paper that you have listed on your

The third paper is my dissertation.

It was similar --

similar to the other two publications in that I was measuring

what was the impact on children from their parents having

health insurance.

And in this paper, the health insurance -- whether

parents have health insurance or not, depended on whether they

were working on a formal employment.

So what I was measuring was the decision of the parents

to go to the job market to get one or another type of job, and

then to -- the decision of having children or not.

And the outcomes that I was measuring were the infant

mortality and the birth weight.

and manipulation of large amounts of data?

and thousands of pieces of data.

Did these research articles all involve the collection

Yes.

All of them have to do with thousands of families

Are you also familiar with databases pertaining to

Laura Andersen, RMR 704-350-7493

DIRECT - GALLARDO-GARCIA
1

asbestos claims?

I've been involved with work related to asbestos-related

claims data analysis.

Yes.

2616

Since I started working at Bates White in 2006,

I have had experience in terms of litigation in cases

like ASARCO Plant Insulation and NARCO.

I've also had

experience in other litigation cases regarding insurance

coverage.

in -- from the consulting side, due diligence for the specific

We've also -- I have also participated in cases

companies.

related to asbestos expenditures, and examples of those are

Garlock before 2010, Goodyear, John Crane, Maremont and

Rockwell.

uses for its financial reporting and other asbestos

claim-related work?

general research and for the -- to aid in the analysis that we

perform for our litigation and consulting.

And then on financial reporting for SEC filings

Does Bates White also maintain internal databases that it

Yes.

We have several databases that we use for both

We have, for example, a database that we call the master

claims database, which is a database that lists all the claims

that we know have been filed -- all the asbestos claims that

we know have been filed in the tort system.

24
25

We also have a database that we call the namings

database, which lists the -- for some of those claims that we
Laura Andersen, RMR 704-350-7493

VOIR DIRE EXAMINATION - GALLARDO-GARCIA

2617

have in the master database, lists all of the defendants that

have been named by these claimants in their complaints.

We have a verdicts database which is a list of all the

verdicts that we've been able to know of from public sources

such as Mealey's and other asbestos-related publications.

We have a products database which is a list of asbestos

defendants -- or companies that handle asbestos, and the types

of products they handle.

That's basically it.

Do you have a role in creating and maintaining these

internal databases?

the data, and now I'm in charge of the management of those

databases.

Yes.

I participated in the design and the collection of

MR. WORF:

Your Honor, we proffer

Dr. Gallardo-Garcia as an expert in statistical analysis,

economic modeling and the construction of databases for those

tasks, including asbestos claim databases.

MR. GUY:

THE COURT:

Your Honor, I have a brief voir dire.

All right.
VOIR DIRE EXAMINATION

BY MR. GUY:

Good morning, Dr. Gallardo-Garcia.

Good morning.

Jonathan Guy for the FCR.

articles, correct?

You do publish peer-reviewed

Laura Andersen, RMR 704-350-7493

VOIR DIRE EXAMINATION - GALLARDO-GARCIA

Yes, I published one.

We can pull back on the screen.

2618

Do either of those articles have anything to do with

asbestos?

No.

Have you ever been accepted by a court as an expert

witness?

No.

What you're going to testify about today, which I

understand is from your initial report, concerns the database

that was compiled by Bates White for preparing Dr. Bates'

report, right?

Correct.

Is there anything you're going to talk about that Dr.

Bates couldn't adequately cover himself?

constructed, all the processes that we followed when

constructing the data, the sources of data.

detail.

preparing the database?

the sources of data that were available to us for constructing

this database; what were the processes that we followed in

putting together the data; what were the quality control

Well, I know the details of how the database was

I know all the

So what you're going to talk about is what you did in

Well, I'm going to talk about what were the -- what were

Laura Andersen, RMR 704-350-7493

DIRECT - GALLARDO-GARCIA

2619

processes.

And I'm going to testify as to the robustness and

the reliability of the data.

actually did in compiling the database, right?

that I directed, and all that based on the experience that I

have in managing and creating these types of databases.

So most of what you're going to talk about is what you

Well, not only what I actually did, but also the work

MR. GUY:

We reserve on the issue as to whether this witness

Your Honor, I have no further questions.

is here testifying as a fact witness or as an expert witness.

Thank you, Your Honor.

THE COURT:

We'll admit him as an expert in the

areas mentioned and let you proceed.

MR. WORF:

Thank you, Your Honor.

CONTINUED DIRECT EXAMINATION

BY MR. WORF:

case.

Dr. Gallardo-Garcia, let's move on to your work in this

What was Bates White engaged to do in this case?

Well, the main charge was the estimate of Garlock's

asbestos liabilities as Dr. Bates defined it in his report.

collection and analysis of large amounts of data about

individual claimants?

Did the work that Dr. Bates performed require the

Yes.

For his analysis we put -- we constructed the

Laura Andersen, RMR 704-350-7493

2620

DIRECT - GALLARDO-GARCIA
1

analytical database that has the information that he used for

his calculations.

the database that Dr. Bates used for performing his work?

Yes, I was.

Did Dr. Bates give you instructions on the information

that that database needed to contain in order to perform his

calculations?

Were you responsible for supervising the construction of

Yes.

So Dr. Bates and I would discuss what was the

information available in terms of the sources of information,

the type of information that was available, for example, from

the questionnaires or other discovery in the case.

on the model that he had developed, we -- I constructed the

database and pulled the information most relevant for his

model to test and estimate his model.

database, as you've called the product of your work, meet the

statistical standards of reliability for the work that Dr.

Bates performed in this case?

when compared to other research databases, the quality control

processes that we implemented when constructing the database,

and when reviewing that the data was properly collected and

was properly standardized, were far more strict than what I've

seen in the construction -- while in the construction of a

And based

In your expert opinion, does the Garlock analytical

I think it does.

It actually exceeds them in terms of

Laura Andersen, RMR 704-350-7493

2621

DIRECT - GALLARDO-GARCIA
1

database of this size.

Does that mean there are no errors in the database?

No.

database of this size and this scope and the number of data

sources that exist -- that we used for constructing it, it's

certain that it's going to have some errors.

database would be practically impossible, given the size of

the database.

There are certainly errors in the database.

Having a perfect

Now the errors that remain, I know are not statistically

insignificant, because of all the quality control processes

that we've implemented when constructing the data.

reviewed the data collected.

collected matched to the underlying data sources.

went through a lot of work to ensure that the data was going

to be as robust as possible.

database is?

database has about a little less than 700,000 records -- or

700,000 claims, of which about 26,000 are mesotheliomas.

We checked that the data

We -- we

Could you give the court some idea of how big this

Well, the initial database, what we call the Garrison

The data that we put together, that we compiled and we

eventually included in the Garlock database in terms for

example of exposure histories or job histories, it's about

1. -- 1.7 million records for those 26,000 individuals.

all individuals have records in the exposure data -- in the

Laura Andersen, RMR 704-350-7493

Not

DIRECT - GALLARDO-GARCIA

2622

exposure table, but it's just a measure of the size of the

data.

Then we also have another table that has the other

parties in those individuals cases, and there are about

480,000 records in these -- in that table.

database in a little more detail.

8
9

Let's talk about the contents of the Garlock analytical

Does this slide entitled, "Main Data Components of

Garlock Analytical Database" summarize the major categories of

information that are in the Garlock analytical database?

Yes, it does.

Could you briefly describe these components?

Yes.

That filed a claim against Garlock.

comes from the Garrison database.

focused on the mesothelioma cases, we have about 26,000 -- a

little more than 26,000 claimants in this database.

So the basis for the data is the list of claimants.

And this list of claimants

So as I was saying, because we

Now, to the data that has to do with -- that was in the

Garrison database, through discovery and other publicly

available sources, we added information about exposures in

terms of job, and exposure histories for a number of these

claimants.

claimants have filed against other parties, other tort

defendants.

verdicts, both Garlock verdicts, and verdicts that happened in

Also information about their claims that these

And we also have information in terms of

Laura Andersen, RMR 704-350-7493

2623

DIRECT - GALLARDO-GARCIA
1

the tort system but in which Garlock was not a defendant or

was not present at trial.

foundation for the Garlock analytical database?

list of claimants and information about those claimants and

claims characteristics.

Garrison claims database?

So it's correct that the Garrison claims database was the

Yes, it was.

The Garrison claims database gave us the

What's the basic information that was contained in the

their social security numbers, some demographic

information, such as birth date and death date, diagnosis

date, the type of disease that they alleged.

Well, the names of the claimants, for a number of them

And then in terms of the claims -- claim characteristics,

when the claim was filed, in which state, or which was the

representing law firm, the status of the claim.

claim was resolved, the resolution dates.

had received a settlement, the settlement amount.

for the Garlock analytical database?

this case, the -- we used the most recent version, which is

the May 18, 2011.

last version to the prior versions, to ensure if there were

any updates to the data, we understood what the updates were.

And if the

And if the claim

What version of the Garrison database did Bates White use

Well, we received three versions during the course of

Although we compare this version -- this

Laura Andersen, RMR 704-350-7493

2624

DIRECT - GALLARDO-GARCIA
1

And that we were actually using the best of the versions of

the Garrison database.

Did Bates White change anything in the Garlock database?

No.

just an input to the Garlock analytical database.

Garrison database remains as we received it.

to supplement the Garrison database with the additional

information that we received in this case.

discovery, but also from other sources.

We didn't change the -- so the Garrison database is

The

What we did is

Mainly from

Garrison claims database, previous versions of the one that

was used here through your financial reporting work for

Garlock's parent company EnPro?

to the SEC filings from -- by EnPro with respect to Garlock's

asbestos claims.

White's econometric work in this case?

that we were -- well, when working on the financial reporting,

we were measuring something completely different to what

Dr. Bates is trying to measure -- is measuring in this case.

So the tasks were completely different.

24
25

Now, before the petition, you were familiar with the

Yes.

In about 2007 I started working on the work related

Why was the Garrison database not sufficient for Bates

Well, it's for two main reasons.

The first reason is

Second, a significant amount of information -- actually

all of the information that was provided in -- or most of the
Laura Andersen, RMR 704-350-7493

DIRECT - GALLARDO-GARCIA

2625

information that was provided in discovery, was not available

to Garlock when we were working on the financial report,

initially.

use.

general categories of information that the Garlock analytical

database has that the Garrison claims database does not?

something that was not included in the Garrison database to

Now, these orange boxes on this slide, they depict

Right.

start with.

So it wasn't something that we could -- we could

A significant amount of this information is

Let's go through these one by one.

What information about claimant exposures are in the

Garlock analytical database that was not in the Garrison

database?

"occupation", at least one of the claimant's occupations.

we know that these claimants usually have multiple

occupations, and also that they worked at multiple different

places in multiple different dates.

Well, in the Garrison database, there was a field called

Now

So through the discovery that we saw in this case we --

there was data available on the nature of Garlock exposure in

terms of how individuals were exposed to Garlock -- Garlock's

asbestos products, complete history in terms of their

occupation, their job history and their exposure history in

terms of occupation to industries, dates of those occupations,

Laura Andersen, RMR 704-350-7493

2626

DIRECT - GALLARDO-GARCIA
1

the locations of those occupations.

And for a subset of the

claimants, we also have information about the other

asbestos-containing products that were not Garlock's to which

those individuals were exposed.

information about that is in the Garlock analytical database,

that was not in the Garrison database?

about other parties.

What about claims against other parties?

What

Well, the Garrison database did not have information

All the claims were filed against

Garlock.

have been also filed against Anchor (phonetic) for example,

but there was no information about the other parties.

There was some indication that some of the claims

Through the PIQ, the questionnaire and other sources, we

were able to supplement the sources by adding the name of

defendants, and other defendants that were named on the

claimant's complaints, the status of their claim with respect

to these defendants.

and what's the status of those trust claims.

the questionnaire claims, we have information about the tort

and trust recoveries, in terms of how much money they've

received from these two types of parties in the tort system.

And also information about ballots cast in other

bankruptcies.

pending against Garlock.

Against which trusts they filed claims

For a subset of

You described information relating to claims that are

Is there information of this nature

Laura Andersen, RMR 704-350-7493

DIRECT - GALLARDO-GARCIA

2627

about claims that were resolved as well?

sources.

discovery, that information was not available for those.

think that we are going to talk about those specific documents

later.

verdicts is in the Garlock analytical database that was not in

Garrison database?

Yes.

Some of this information is available from public

Not the information that was granted in

Let's talk about verdicts.

What information about

had gone to verdict.

listed the claimants, and the fact that those cases have been

resolved, and there has been a payment for those claimants,

but didn't identify them as whether those were settlements or

actual verdicts, and a similar issue was the case for the

defense verdicts.

Well, the Garrison database did not identify which cases

It was in the Garrison database, it only

So we -- through additional documentation that we

received from Garlock, we were able to locate those claimants

in the Garrison database and identify them as verdicts, and

also other additional information in terms of outcomes and

verdict dates, for example.

Also for other mesothelioma defendants and verdicts, we

added information about other cases that have resulted in

verdict, and information about the outcomes in terms of

whether they were defense or plaintiff verdicts, the amounts

Laura Andersen, RMR 704-350-7493

DIRECT - GALLARDO-GARCIA

2628

that those cases were awarded, and the dates in which these

cases happened.

is there any additional information in the Garlock analytical

database that was not in the Garrison claims database?

able to supplement with publicly available information to help

in the analysis and also to make the database more robust.

In addition to the three major categories we discussed,

Yes.

There were a few places, a few fields that we were

For example, a number of individuals in the database did

not have a birthdate or a death date, and we used a file

called the master death file from the Social Security

Administration to supplement those dates.

So this file is just a list of all the social security

numbers of people who have died.

characteristics, like the person's name, his or her birthdate,

death date, and the last place of residence.

And it has some basic

Also we supplemented the database with information that

we -- when not available from any other source, with

information from the -- a copy of the Manville trust database

that we have with claims filed against this trust through

2002.

We also have a copy of the claims -- Center for Claims

Resolution or CCR with claims through 2001, that also have

information about -- sometimes about claimants, in terms of

dates, also in terms of occupations and places of exposure.

Laura Andersen, RMR 704-350-7493

DIRECT - GALLARDO-GARCIA

2629

And -- well, that's basically it.

Information" in the Garlock analytical database, summarize the

kinds of information about individual claimants that may be

present in the Garlock analytical database?

be present for a given claimant.

has all this information, because of the way that the data was

received or collected in terms of -- there were some piece of

Does this slide entitled "Summary of Claimant and Claim

Yes.

This is the list of all the information that might

Not every single claimant

discovery that was present for some claimants but not for

others.

sources and some did not, et cetera.

information.

Some claimants appeared in some publicly available

But this is the basic

So we have very good information in terms of who were the

claimants who filed the claim against Garlock, and what were

the claim characteristics in terms of -- the claimant and

claim characteristics in terms of their name, their social

security number, important dates like birthdate -- birthdate,

death date, diagnosis date.

have that date we can presume that they are deceased.

have claim information in terms of where the claim was filed,

the status, and the outcome of that resolution.

Whether they are -- well, if we

We also

For exposure information we can see that we have all the

categories that I have mentioned before, and it's basically

information on the -- under a job and exposure histories by

Laura Andersen, RMR 704-350-7493

DIRECT - GALLARDO-GARCIA
1

2630

years.

And finally in terms of other parties' information, is

information about other defendants and trusts, trust claims

filed and some additional -- well the ballots and the trust --

tort and trust recoveries.

information about asbestos litigation and asbestos claimants

as the Garlock analytical database?

Are you aware of any database that contains as much

Well, I'm not.

Since I've been working at Bates White

and working with asbestos-related databases, this is the -- I

would say that this is the database that has the most database

About claimants that I have ever seen.

analytical database came from.

come from discovery granted in this case?

Yes.

Did Bates White review or supervise the review of every

piece of claimant-related discovery that the court ordered to

be produced in this case?

this case, and we reviewed all the materials that were

submitted.

Garlock analytical database?

Let's talk about where the new information in the Garlock

Yes.

Did much of this information

Most of it came from discovery.

We -- we considered all the discovery granted in

And much of that information is now loaded into the

Yeah.

The information that was most useful for the

Laura Andersen, RMR 704-350-7493

DIRECT - GALLARDO-GARCIA

2631

estimation of Garlock's estimated liabilities has been added

to the database.

the record, could you briefly describe the forms of discovery

that Bates White received and used?

discovery was the questionnaire.

questionnaire sent to all open mesothelioma cases that

appeared on the Garrison database at some point in time.

Now the court is very familiar with this, but just for

Yes.

The first and probably the most important piece of

This was for -- this was a

We also -- for a subset of those claimants, there was a

supplemental exposure questionnaire that asked for additional

exposure information.

that received the supplemental payment questionnaire, which is

the questionnaire that asked about tort and trust recoveries,

and the number of parties that have paid -- that have made

those payments.

There was also a subset of claimants

We also have the discovery on the trust data from the

Delaware Claims Processing Facility.

discovery on ballots cast from -- by claimants in 23

asbestos-related bankruptcies.

from each form of discovery.

And we also had the

Let's just briefly discuss what information was collected

What information did you get from what you've called the

PIQ, and what I believe in the court's order is described as

the mesothelioma claimant questionnaire?

Laura Andersen, RMR 704-350-7493

DIRECT - GALLARDO-GARCIA

2632

Well, the main information that this questionnaire called

for was information about the claimants.

identified them in terms of their names, their social security

numbers, demographic information like birthdate, death date,

diagnosis date, the fact that whether they were alive or

deceased.

respect to Garlock products.

industries, locations.

Garlock's products, in terms of whether they were handling the

So information that

Also detailed job and exposure information with

In terms of occupation,

The way in which they were exposed to

Garlock products directly, indirectly or they were next to

someone who was handling those products and how they were

handling them.

In terms of other asbestos products, also locations,

occupations, industries like complete job and exposure

histories.

With respect to the claims, it was basic claim

characteristics such as where the claim was filed, when it was

filed, what was the status -- what is the status of the claim,

general status of the claim, other parties that were named on

the complaint, and the status of the claim against those

parties, whether there's been trust claims filed against the

trusts, and what the status of those trust claims, et cetera.

that some of the mesothelioma claims that were listed as

pending in the Garrison claims database, were not in fact

Through the questionnaire process, did Bates White learn

Laura Andersen, RMR 704-350-7493

DIRECT - GALLARDO-GARCIA

2633

pending mesothelioma claims?

questionnaire in a large number of instances, the -- they

would basically submitted a communication saying, my claim has

been already dismissed against Garlock.

claim.

didn't have mesothelioma, and it was actually another disease.

8
9

Yes.

Through the process when claimants answer to the

Or I'm withdrawing my

Or the injured person or the mesothelioma person

So through that process, plus the updates that Garrison

has made of the Garrison database, we were able to identify

that about 2,000 records that initially appeared in the

Garrison database as open mesothelioma cases, were in fact no

longer open mesothelioma cases or never were.

claim might not be still an open mesothelioma claim?

dismissed, as I have on the bottom right box here, that the

claim is already closed.

duplicates in the Garrison database.

claims were identified as inactive in the Garrison database --

in the most recent version of the Garrison database.

Can you briefly describe the different reasons why a

Well, so they would say that their claim had been already

In a few instances there were

There were -- some

Or in some instances, the claimant will say that they

never had Garlock exposure, and that they were withdrawing

their claim.

24
25

So in those cases we also considered that.

And in several cases they pointed out that they did not
actually have mesothelioma, that they had another disease, and
Laura Andersen, RMR 704-350-7493

DIRECT - GALLARDO-GARCIA

2634

that therefore they were not subject to the questionnaire.

Claims Classification After Data Collection"?

Correct.

Approximately how many questionnaire submissions were

there?

answering to the questionnaire.

submissions from the representative saying that that claim was

And the slide you are referring to is entitled "Pending

Well, submissions, there were about 4,200 claimants

There were some additional

no longer a mesothelioma open or pending claim.

These submissions also have attachments, and the number

of documents that we ultimately received from this process

were about 30,000 documents.

So the questionnaire came in a variety of forms?

Yes.

which we received the questionnaire.

answered the questionnaire through the online portal Rust,

which was the agent managing the data collection for the

questionnaire that Rust had set up for them to submit their

information.

There were two main manners in which it came -- in

About 1,000 claimants

The rest of the claimants actually filled -- filled in

the fields in the paper versions of the questionnaire and

submitted those questionnaires as paper documents by mail to

Rust.

Did Bates White review or supervise the review of every

Laura Andersen, RMR 704-350-7493

DIRECT - GALLARDO-GARCIA

2635

piece of information that was submitted in response to the

court's questionnaires order?

information that will be responsive to the questionnaires, in

the case that the information was not already available on the

face of the questionnaire.

the questionnaire, in other words, on the form itself,

incorporated into the Garlock analytical database?

Yes.

We went through all the documents looking for the

How was information that was actually put on the face of

transcribe those -- that information from the face of the

paper questionnaires to the -- into this electronic database

that Rust was compiling.

Well, the questionnaire order said that Garrison was to

Now, that's what Garrison did.

After that, Bates White conducted a round of quality

control on the transcriptions.

We documented the error rates.

And based on those error rates, we decided to ask another

vendor, World Wide Digital, to go through the -- some of the

questionnaires and confirm that the data had been collected

correctly, and to supplement the data that might have been

missed by Garrison in the first round.

After that, we also at Bates White conducted a round of

quality control of that resulting data and we made sure that

the error rates were what we -- what we found as acceptable.

What kind of company is World Wide Digital?

It's a company whose business -- whose main business is

Laura Andersen, RMR 704-350-7493

2636

DIRECT - GALLARDO-GARCIA
1

to transcribe data from paper documents into electronic form.

They have personnel in India, I think, and they are able to

transfer vast amounts of data from paper into electronic form

for a very low fee per record.

questionnaire.

attachments claimants sent in with their questionnaires?

the data that was not reported on the face of the

Now, that was information that was on the face of the

Yes.

Did Bates White also collect data from the

We went through the questionnaires and collected

questionnaire.

information from attachments to ensure that that information

was collected reliably and accurately?

data.

review teams that participated in the data collection.

every time that -- we will basically train the individuals

that were going to collect the data.

control rounds on the data collected concurrently as the data

was being collected, to ensure that there was -- that all the

data was collected in the same way, and there were no

discrepancies in the data collection.

performed several rounds of quality control, depending on what

was the source of the data, and what was the nature of the

data itself.

Did Bates White follow a process for collecting

Yes.

We have a pretty strict protocol to collect the

We followed several different steps.

We have four
And

We will do quality

After that we also

Laura Andersen, RMR 704-350-7493

2637

DIRECT - GALLARDO-GARCIA
1

instead of Bates White, for example, collecting all this data

itself?

save as much money as possible to the estate.

teams that we used for the data collection -- we have a data

collection team at Bates White, but we also had Garrison staff

help us with data collection, and that was at no additional

cost, because they are already employed by Garlock, or they

10
11

What was the main purpose of having these review teams,

Well, the main purpose was cost.

We -- the goal was to

So one of the

are part of the debtors.

We also had a team of contract attorneys that were hired

by Robinson Bradshaw here in Charlotte that helped us to --

helped us collect data from PIQs and documents.

reason for which it was run in Charlotte as opposed to DC, was

because the Charlotte rates are lower than those in DC.

And the

Now every time that there was any piece of information

that was standard enough and that was very straightforward to

collect, such as names on complaints that are just a list of

names, just really in a very organized way, we asked this

World Wide Digital Company to help us with the data

collection.

Now after all the data was collected, every single time

Bates White will go through and do a quality control round to

make sure that the data was collected properly, and that the

data was consistent, and that it was -- it met our reliability

Laura Andersen, RMR 704-350-7493

2638

DIRECT - GALLARDO-GARCIA
1

rules that we have instituted.

Did Bates White supervise all these review teams?

Yes.

teams that were reviewing these cases.

We had direct supervision of the review -- of the

We will have a person from Bates White, one of the -- of

our most experienced claim file reviewers, because -- well,

something that I must say is that Bates White has done these

type of exercises several different times.

first time that we went through a process of claim-file

This is not the

review.

asbestos-related.

White who have gone through these processes in terms of

hands-on data collection.

We've done these for multiple cases, not only

So we have very experienced people at Bates

So we will have one of these people meet with a team, and

basically stay with a team for long periods of time to ensure

that all the data was collected correctly.

always an open communication between team leaders, or the team

itself, and the Bates White quality control team to ensure

that all the data was collected properly.

White when they were reviewing documents and collecting

information from you?

by a template that we designed.

to be collected exactly as it appeared in the documents.

And there was

What was the reviewer's goal as given to you by Bates

Well, the main goal was to collect all the data required
And that that data was going

Laura Andersen, RMR 704-350-7493

2639

DIRECT - GALLARDO-GARCIA
1

there was no -- there was -- there wasn't going to be any

interpretation from the side of the reviewers.

that might come up will be addressed by the team leaders in

discussions with myself and the other quality control

reviewers at Bates White.

collected information from documents like those attached to

the questionnaire?

10
11

Every question

Do you have an example for the court of how Bates White

Yes.

We prepared some slides that describe the process

of collecting the information for work histories.

So what is on the screen is the picture of the template

that we constructed for facilitating the collection of the

data.

reviewers, although the data that was collected in this --

through this tool is the exact data that we have in the

database and that we have in the raw sources of the database.

This template is just how it will look to the

Now, but this template was designed to make it as easy as

possible for the reviewers to actually fill in the -- just the

fields that they were looking for from the data.

So now our reviewer will be assigned a case.

And then he

will go -- or he or she will go and highlight the case on the

list.

highlighted.

case.

So as you can see there, claimant number seven is

So he or she will hit edit for the selected

And then there will be other data.

Can we go back to the prior -- all the data at the bottom

Laura Andersen, RMR 704-350-7493

DIRECT - GALLARDO-GARCIA
1

will appear, which is all the characteristics for that

claimant.

2640

Now, for example, if we were to collect information in

terms of work history, we will push the work history button

which is at the bottom there, and then this window will

appear.

Now in this window we will be able to collect what were

the locations of this individual's job, what were the dates of

their job, of their employment, or their exposure there, and

some additional information.

Now if we wanted to collect the occupation that this

person was performing in this job site, we will click the

occupation button on the right.

come up.

And then this new window will

And on this window we will be able to specify the exact

dates for that occupation within that site, that worksite,

what were the -- what was the actual occupation and any other

additional information that might be ready.

Now on this example we only have one record, but we will

have had as many occupations within a worksite that's

necessary.

about claimants' occupations, industries, and worksites where

they were exposed to asbestos, were collected from the

submitted questionnaires?

This was just an example.

So using this tool, all the information that was provided

Laura Andersen, RMR 704-350-7493

2641

DIRECT - GALLARDO-GARCIA
1

all the data collection.

occupation field.

have been entered verbatim from the documents that the

reviewer was reviewing?

standardized form.

if the claimant had said on the deposition or interrogatory or

even the questionnaire document, on and off as opposed to that,

then on and off will have to be written in there.

hypothetical data to avoid any confidential issue?

particular.

Could you explain what the purpose of that was?

Because to facilitate and actually to make possible the

quality control of the data that we collected, we required the

reviewers to specify the exact document and the page number in

which they had found each piece of information from the --

when conducting the claim file review.

24
25

Yes.

That was the -- this is a template that we use for

Now I see the word "intermittently" entered in the

Yes.

Is that an example of something that would

This will be an example.

This is not a

So if they, for example, in the alternative,

Just to be clear, you populated the template here with

Yes.

This data is not claims -- is for no claimant in

Now I see a button called "source document citation".

Well, this is a very important section in the template.

So in this case you can see that they will have -- click
that button.

This new window will come up.

And they will

Laura Andersen, RMR 704-350-7493

DIRECT - GALLARDO-GARCIA

2642

have been able to list all the documents and the page numbers

and make a note if there was any detail that was necessary to

give for the quality control person, or to whoever that wanted

to review how the data had been collected.

But did the template that the reviewers used have similar

fields where they could enter the other information that might

have been contained in the documents that they reviewed -- the

questionnaire asked for?

Now we talked about occupation, industry, and worksite.

the PIQ.

asked for in the -- on the PIQ form.

source documents, so that Bates White can perform quality

control on their work?

and to ensure that the data was properly collected and that

the data was -- that all the data that was available had been

collected, and that the data that had been collected was

exactly what appeared on the documents.

process that Bates White followed for ensuring that the

information was collected reliably and accurately?

Yes, it was.

The template was basically designed after

So it included all the information that had been

Is one purpose for requiring the reviewers to cite the

Yes.

As I said, the main reason was to be able to review

Could you explain for the court the quality control

Yes.

We have a slide on that.

So there are basically -- so the whole process starts on

Laura Andersen, RMR 704-350-7493

DIRECT - GALLARDO-GARCIA
1

the very left.

of one of the teams.

data.

data collected.

2643

We will assign a claim or a file to a reviewer

Then this reviewer will collect the

And then there will be a quality control review of the

At that point there are two things that could happen.

the data needed required updates in terms of the reviewer

having missed a piece of information, or not having sourced a

piece of information, then the quality control reviewer will

send the document back to the original reviewer and they will

have a conversation about what was the -- what were the issues

with that file to ensure that that issue did not appear -- did

not happen again in the future cases.

Now, there were a couple of instances in which the data

that had been collected and that had been flagged as having an

issue, might have been flagged because of a misunderstanding

on the reviewer's part.

quality control review team will go back to other files from

the same reviewer to ensure that this was an issue that only

appeared on that specific claim, as opposed to all the claims

that this reviewer had reviewed.

21
22
23

So if that was apparent, then the

I must say that this happened probably in the whole

process one or two times.

It was very rare.

Now, if the quality control team did not find any issues

with the data or the data was correct and complete, based on

our review, then it will be added to the analytical database.

Laura Andersen, RMR 704-350-7493

DIRECT - GALLARDO-GARCIA
1

2644

At that point there will be another review -- another

review step which will be conducted by Dr. Bates or myself --

and myself, in which we will analyze the data and look for any

patterns that -- or any points of data that seem to be

outliers that could have been an error in terms of how data

was collected.

If we identified any of those errors, then we will go

back to the reviewer and ask the reviewer to confirm that that

was exactly how the data appeared on the source documents.

And if it was not, then to correct the error and then the

whole document or just for that specific field will follow the

whole process all over again.

Now, if the -- after the data review there were no

identified issues, then it will just be part of the analytical

database and we will do the data analysis and Dr. Bates will

use it for his analysis.

in a useable form what the document said?

the data that was relevant and to have it in a form that was

standardized and clean so it could be analyzed altogether or

in an aggregate way as necessary.

levels of quality control during the collection of this data?

So the purpose of the data collection was to just capture

Yes.

The main purpose of the database was to collect all

And it would be accurate to say that there were multiple

Yes.

There were multiple -- I mean, this process could

Laura Andersen, RMR 704-350-7493

DIRECT - GALLARDO-GARCIA

2645

have been applied two or three times to a case, depending on

the complexity of the case.

fields that we were -- that we were -- for which we applied

more rounds of quality control.

There were also some specific

For example, we had this field that is the nature of

exposure to Garlock gasket.

So how people were -- how

claimants were exposed to Garlock gaskets in terms of whether

they were cutting or removing gaskets directly, or they were

next to someone who was doing that, or they were at the same

site -- et cetera.

information, all that information followed this process.

So all of those -- when we collected that

But then there were -- there was a number of claimants

who had provided documents and they didn't have -- and we

weren't able to find any nature of their contact with Garlock

gaskets.

missed absolutely any information, we implemented yet another

round of quality control to ensure that there were no

additional -- there was absolutely no information that could

give us a clue of how they were -- how they were in contact

with Garlock gaskets.

followed for collecting information from documents, submitted

in response to the questionnaire, a reliable and accurate one?

processes that we implemented, I think that it -- the outcome

For those claimants to make sure that we hadn't

In your expert opinion, was the process that Bates White

I think it was.

We -- given all the quality control

Laura Andersen, RMR 704-350-7493

2646

DIRECT - GALLARDO-GARCIA
1

of the whole process was -- is very robust and I think is very

reliable.

information?

Yes.

Did Bates White, nevertheless, where it was able to, seek

to minimize the costs of collecting this information?

costs, we tried to implement something to that effect.

Now, was it an expensive process to collect this

Yes.

I think it was -- it was very expensive, yes.

So every time that there was a way of saving on

As I was saying, for example, we had the Garrison team

here that -- sorry -- in Charlotte -- in Rochester, that were

helping us with the review at no extra cost.

of attorneys here that were helping us at lower rates.

every time that there was a task that it was structured enough

and easy to collect, we would give it to World Wide Digital

which really charged us very, very, very small fees for per

record.

We had the team

Then

Now, as in -- more generally, what we also did, is that

we will collect only the data that was useful for the database

that was to be used for estimation.

information that wasn't going to be used for the -- in the

estimation.

So we didn't collect

So for example, there were a lot of -- there was a lot of

information in terms of the addresses of the claimants, or the

addresses of the plaintiff law firms.

That information was

Laura Andersen, RMR 704-350-7493

2647

DIRECT - GALLARDO-GARCIA
1

not sought and collected, for the most part, because it wasn't

necessary.

There were a lot of medical documents that -- where the

mesothelioma diagnosis was being discussed.

We didn't collect

any of that information, because we took all the mesothelioma

claims as being mesotheliomas, regardless of what their

medical documents said, and given that they also said that

they were mesotheliomas.

Now that -- if the claimant said they did not have

mesothelioma, you took that into account though?

have mesothelioma, we would take that into account.

they didn't say that they do not have mesothelioma, and then

submitted a doctor's diagnosis document, we actually didn't

try to collect any additional information from that, because

we took it as a mesothelioma.

How did data collected through that discovery device enter

into the Garlock analytical database?

Of course.

If they affirmatively said that they did not

But if

Let's talk about the Supplemental Exposure Questionnaire.

Well, as part of the -- let me give a little background.

So in the first part of the questionnaire process, the

original PIQ, there were several claimants who submitted --

instead of answering on the body of the questionnaire,

submitted interrogatories or depositions.

Now, as response to the exposure questionnaire -- to

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respond to the questionnaire, some claimants also submitted

interrogatories or depositions.

claimants that had submitted through the PIQ, through the

original questionnaire or through supplemental exposure

questionnaire an interrogatory or deposition, we took a random

sample to basically collect more data in terms of which other

products they had been exposed to.

ask about other products, but some claimants submitted

And so the -- so out of all

So just to be clear, the original questionnaire didn't

documents that described other products that they were exposed

to?

That's correct.

And the supplemental exposure questionnaire did ask about

other products?

as -- to -- to design the -- to draw the sample that we

reviewed to collect that information.

claimants identified was collected through a sample.

determine the representativeness of that sample?

who submitted an interrogatory or a deposition within the PIQ,

and that much I know.

24
25

Yes.

And we used the attachments to that questionnaire

You said that this information about other products that

Did you

Well, so that sample is representative of the individuals

Now whether that sample is representative of the whole

Garlock claimant population, that's something that
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Dr. Bates -- that's analysis that Dr. Bates performed.

think that he was -- he was content with the

representativeness.

collected through a similar process to how you described the

collection of the industry and occupation data?

template process, and the same quality control process.

And I

Was the information from this other product sample

Yes.

We basically followed the same process, the same

This is another -- well, we are now back to the beginning

of the tool that I was showing you before.

that at the bottom right there is a product exposure button.

So our reviewer will have clicked on that button, and then

this new screen will have come up.

And you can see

On this screen they could have collected information

about which products -- to which products the claimant was

alleging to be exposed to; what was the manufacturer of these

products; what was the -- any other characteristics about

those products.

And as you can see on the right side, there were buttons

that the reviewer will be able to show this is the source

citation.

that was collected for that effect.

that reviewers were instructed to apply during this review?

They will be able to source all the information

What was the standard for recording of product exposure

Well, they were to collect every single product to which

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a claimant alleged exposure.

And if the manufacturer of that

product was available, then they were going to collect the

manufacturer.

collection of this information from documents?

the same quality control process that we showed before on the

slide.

And was a similar quality control process applied to the

Yes.

We followed exactly the same process.

It will be

What information was gathered from the Supplemental

Settlement Payment questionnaire?

questionnaire claimants, and about 850 answered the

questionnaire.

the questionnaire, was the total amount that claimants had

received to that date by tort defendants, the total amount

that they had received of trust -- from trusts, and trust

payments, and then how many tort and how many trust parties

had made those payments.

Payment Questionnaire was sent to?

Yes, I did.

How did you do that?

Well, it was just from the claimants that at the

moment -- at the time of the questionnaire were still

classified as pending mesothelioma claims.

Well, from -- this questionnaire was sent to 1,000 of the

And the question or the information sought in

Did you select a sample that the Supplemental Settlement

We just selected

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1,000 of them with a straight random sampling technique.

Supplemental Settlement Payment Questionnaire incorporated

into the Garlock analytical database?

screen.

had staff that could transcribe those responses into an Excel

file.

original submissions, and we went through a quality control

How was the data that was returned through the

Well, it was returned on this format that is on the

Robinson, Bradshaw received these responses, and they

Then Bates White received both the Excel file and the

round to make sure that all the data that had been collected by

Robinson, Bradshaw were correct and there was no data missed.

the Delaware Claims Processing Facility?

11,000 settlements -- civil settlements from this facility.

We received back more than 60,000, I believe, records, for

about 9,600 claimants.

claimants had filed trust claims against any of the 10 trusts

that -- for which we received information.

claim was filed.

at the time of that claim against each one of those trusts;

and if the claim had been approved for payment, what was the

approval date; and if it had been paid, what was the payment

date.

What information was gathered from the data received from

Well, this was data on -- Garlock requested data on about

The information was whether these

What -- when that

What is the status -- or what was the status

Who were the 11,000 settled claimants that Garlock

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requested data with respect to?

petition, I believe.

Of mesothelioma?

Mesothelioma settlements, yes.

And you said 9,600 out of the 11,000 settlements -- 9,600

of those claimants had filed at least one claim with one of

those 10 trusts?

Correct.

How is the data from the Delaware Claims Processing

Facility production incorporated into the Garlock analytical

database?

Excel spreadsheets.

We didn't have to transcribe any data.

database form.

Well, there were all the settlements since 1999 through

Well, we received the data through -- in a few different

So we did not have to collect any data.
It was already in

So what we did is we compiled the data together into just

one file.

And we reviewed the data to understand how the data

had been constructed.

duplicates in the data, because in some instances it appeared

that a claimant had filed a claim that had been withdrawn, but

then the claimant had refiled the claim.

We found that there were a few

And in some of these instances, those will be two

different records on the table that we received from DCPF.

in that case we will just duplicate that to count as one trust

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2653

submission.

And well, we basically went through the same process of

finding who were the claimants in the Garlock analytical

database that had provided that information, and we just

merged the information from the fact that they had filed one

of these claims, the dates, et cetera, to the main part of the

database.

been subpoenaed by Garlock in the case?

What information was gathered from the ballots that had

whether a claimant had submitted a ballot, or had submitted a

vote to one of these bankruptcies, and to which bankruptcy

they had submitted the vote.

Well, the information was -- the main information was

To be able to identify claimants in the Garlock database,

what we did is collect the name of the claimants, the social

security number or the portion of the social security number

that appeared on the ballot, to be able to match it back to

the Garlock database, and also the plaintiff law firm who had

submitted the ballot.

identification of the claimant.

collected data on the date in which the ballot was due.

available in this case, summarize the cases where you received

ballots?

Because that was also useful for

And we also collected -- or

Does this slide entitled, "Asbestos Bankruptcy Ballots"

Yes.

It has the names of 23 bankruptcy cases for which

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we received ballots.

How was the information gathered from ballots?

Well, we received -- in some instances we received Excel

files, in some other instances -- or most of the time we

actually received documents, electronic documents as the one

that we have in the previous slide where the data needed --

wasn't -- we needed to collect the data off of those

documents.

For this task we asked World Wide Digital to do data

collection.

names of the claimants, and the couple of additional fields

that were basically attached to lists -- attached as lists to

these ballots.

Because it was very easy to just collect the

So that was -- World Wide Digital entered all the data

from documents into Excel form that was then received by Bates

White, and we did reviews of the data collected by World Wide

Digital to make sure that the data was correct.

Then using the fields that I mentioned before, then we

will go on and try to identify the claimants in the Garlock

analytical database.

also undertake a data collection effort to obtain more

information about resolved Garlock claims?

collected by the PIQ -- so the PIQ was -- provided information

In addition to discovery we talked about, did Bates White

Yes.

So to supplement information that had been

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for pending cases.

to have a complete picture of Garlock's history, what we did

is to select a group of resolved cases, historically, to try

to collect the same type of information.

a random sample of those historical cases.

information from?

design in terms of what were the subgroups that needed to be

covered by the sample, was an instruction given by Dr. Bates.

So now to be able to make comparisons and

And for that we drew

Did you design that sample of resolved cases to collect

Well, I implemented the sampling, although the main

But his instruction was basically, I need a

representative sample of all historically resolved cases, and

we need to make sure that we have verdicts -- in this sample

we include all verdicts, we have settled cases, and we also

have dismissed cases.

have coverage of all of Garlock's history in terms of timing.

So that's why we divided the claiming -- the resolution -- the

resolved cases historically into these three time periods to

ensure that there were -- in the final sample there were

claims from every single period.

"Historical Garlock Claim File Review", summarize the sampling

strategy for the resolved claim file review?

So at the time we sampled 1,156 cases.

And we also needed to ensure that we

Does the table at the top of the slide entitled

This shows what was the outcome of the sample selection.

We included all the

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verdicts in which case you might say that it was a census of

the verdicts rather than a random sample.

settled cases and dismissed cases, and then we sampled for

these three different time periods.

you do?

and they were able to produce about 785 cases.

these cases, and then with the data collected, we went back to

We also sampled

After you had designed the sampling strategy, what did

Well, we basically asked for the documents from Garlock,

We reviewed

the population and made sure that the groups that we had

targeted in the beginning, which is the first table on the

slide, were actually covered by the information we had

received.

the resulting sample.

obtainable were sufficiently representative for Dr. Bates'

work?

of the resolved population -- of the population of resolved

cases.

with other historical claim files?

the files collection exercise that Garlock went through, they

were able to collect information or files on additional cases,

And the bottom table is what shows the coverage of

The one that we actually reviewed.

So you determined that the files that were actually

We -- we verified that this was a representative sample

Did you supplement the random sample that you described

Yes, there were additional cases available.

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Because in

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these were mostly resolved cases.

And because these cases

were -- had significant amount of information available, and

they were already available for review, we reviewed a number

of them.

does that entail?

In many instances we will have the interrogatories, possibly

multiple of them, many of them, several of them.

Now, when we say claim files, what sorts of documents

Well, it will be -- usually will be the actual complaint.

Then we will

have depositions, in some cases multiple depositions.

have exhibits that were attached to the depositions or

interrogatories and those sorts of documents.

received?

and exposure history information.

We will

What information was collected from the files that you

Well, it was for the most part the exposure -- the job

Now the -- there was a lot of information that we have

collected for the PIQ claimants that was not available for the

resolved cases, because that information was just not

available to Garlock in the tort system.

So, for example, we were not able to collect information

about trust filings for these cases.

And we were not -- well,

we don't have information about the status of the claims from

these claimants with respect to other defendants.

have information about recoveries, tort and trust recoveries

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We don't

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as I was explaining before.

So it was -- the goal was to collect as much of the

information that we had collected for the PIQ from these cases

with the limitation of what information was available.

control process that you used when collecting information from

the questionnaires?

same process, the same quality control processes.

Did you use the same data collection tool and quality

Yes, we used the same -- basically the same template, the

And for the

most part, the same teams that collected information from the

PIQ.

ballots relate to claimants who had resolved mesothelioma

claims with Garlock?

open or pending or to resolved cases.

ballots for all the claimants who had voted in those

bankruptcies, as far as we know.

ballots that we received clearly were not complete, because

there were documents filed in those bankruptcies counting the

number of ballots.

have fewer ballots than what those documents will say.

had -- we basically collected all the information that was

available that we received.

Now, we talked about the ballots before.

Did some of the

Yes, the ballots -- the ballots were not restricted to

It was for -- we had

Some of them -- some of the

And when we collected the data, we would

But we

Is there any other data that we haven't talked about yet

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that went into creating the Garlock analytical database?

CCR databases that we have at Bates White.

databases -- we used those databases to supplement the Garlock

analytical database in the sense that there might have been

some cases for which we didn't have a claim file review, and

were not pending mesothelioma claims, part of the PIQ, but

were found in these databases and they had some information in

terms of occupations, industries, some exposure history.

Well, I mentioned before the copies of the Manville and

From those

we used that information to supplement the database when no

other source of information was available.

detail on all the topics we discussed today?

the steps that we followed -- the -- each one of the data

sources that we used.

submitted after sending the -- submitting the report itself,

you can find all the scripts and data sources and all the

information that went into creating the Garlock analytical

database.

21
22

Dr. Gallardo-Garcia, does your expert report contain more

Yes.

On my first report we have the -- I explained all

MR. WORF:

And on the production materials that we

Your Honor, I have a few exhibits, may I

approach the witness?

THE COURT:

BY MR. WORF:

Yes.

Dr. Gallardo-Garcia, could you look at the object that

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I've marked as GST-8002.

Yes.

Do you know what that is?

Yes, it's a drive that -- where the data submitted to the

PIQ -- basically all the data submitted in discovery was

copied into and also a copy of the Garlock analytical

database.

the supplemental questionnaires, the Delaware claims data, and

So it contains copies of the PIQs that were submitted,

the ballots, as well as the Garlock analytical database?

Correct.

MR. WORF:

Your Honor, we would move to admit the

hard drive that I've marked as GST-8002, under seal, due to

the protective orders that the court has entered in this case.

15
16

MR. GUY:

Your Honor, we have no objection.

So long

as we have copies our expert can review them.

THE COURT:

MR. WEHNER:

Okay.

All right.

Your Honor, we can't see inside this

right now, and so we'll reserve our objection until we can

take a look at it, but if it's as he described, we're all

right.

22
23
24
25

THE COURT:

All right.

We'll admit that subject to

the comments later.

(Debtors' Exhibit No. 8002 was received into
evidence.)
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BY MR. WORF:

copy of your slides that have been on the screen today.

the copy that I handed you a copy of your demonstrative

slides?

7
8

Dr. Gallardo-Garcia, I'm going to mark as GST-8003, a

Yes, it is.

I think.

MR. WORF:

Yes, it is.

Your Honor, we move to admit that as a

demonstrative exhibit.

THE COURT:

We'll admit that.

(Debtors' Exhibit No. 8003 was received into

evidence.)

BY MR. WORF:

copy of your expert report.

expert report?

And then finally I believe I've marked as GST-8004, a

Is that in fact a copy of your

Yes, it is.
MR. WORF:

Your Honor, we move to admit GST-8004 on

the same basis that other expert reports have been admitted in

this case.

MR. GUY:

Your Honor, no objection.

I do believe

that by the end of the case if I say it enough times, debtor

counsel will need to give us copies.

MR. WORF:

MR. GUY:

MR. WORF:

I'm sorry.

That's all we need.

We have them here.

Maybe this is the time.

(Handing paper writing).

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MR. GUY:

MR. WORF:

MR. WEHNER:

(Debtors' Exhibit No. 8004 was received into

Do you have the demonstrative?

Yes.

MR. WORF:

THE COURT:

MR. GUY:

THE COURT:

Thank you, Dr. Gallardo-Garcia.

Okay.

Who wants to go first?

Would we like to take a break?

MR. GUY:

I would like to go for a little while

Do you mind if I do the cross-examination

from here?

THE COURT:

MR. GUY:

No objection.

first.

11
12

(Handing paper writing.)

evidence.)

2662

No, that's fine.

But I do have a very sophisticated, and in

honor of Mr. Magee, a cheap exhibit.

CROSS-EXAMINATION

BY MR. GUY:

We're not going to ask any lawyer to count those.

Now Dr. Garcia, you remember I deposed you, I think it

would be most expeditious if we put up Dr. Gallardo-Garcia's

deposition transcript, starting at page 207.

I deposed you and you said that you consider yourself to

be an expert in financial reporting?

issues -- financial reporting cases since about 2007.

Yes.

I've been working with financial reporting

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think that I have experience in that, yes.

companies that you've done that work for, correct?

Yes, there's a few, yes.

And when I say, "done that work", I mean in the context

of financial reporting concerning asbestos liabilities.

Yeah, well, it's asbestos-expected losses, yes.

Are you familiar as an expert in financial reporting,

with the Financial Accounting Standards No. 5?

And Mr. Worf showed you a slide, and there's a lot of

I've read them a couple of times, a long time ago.

I'll put it on the ELMO.

correct?

Yes, yeah.

You've read it before, right?

Yeah.

Now, I know you're not an accountant, sir, but I know

that you're an expert in financial reporting so I have one

just quick question on this.

You're familiar with that,

Can you read that, sir, at the bottom, "accrual of loss

contingencies".

Is that what you're doing in helping these

companies prepare estimates as to their asbestos-related

liabilities?

Yes.

Can you see at the top there it talks about the

appropriate standards.

You see it says, right here:

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2664

"Information available prior to issuance of the financial

statements indicates that it is probable that an asset has

been impaired, or a liability had been incurred at the date of

financial statements.

it must be probable that one or more future events will occur

in confirming the fact of the loss."

Yes.

And that's what you're doing for these companies, right?

Yes.

And then it says, "the amount of loss can be reasonably

estimated."

Yes.

So when companies engage you, they're asking you to give

them estimates consistent with that standard, correct?

Correct.

You've done that for literally -- well, at least 20

companies?

No, well, I showed I think five in the exhibit.

All type -- a lot?

Well, five -- between five and 10, yes.

Well, we have it on the demonstrative, sir.

Although, not all of them were financial reporting.

some of them were bankruptcies.

names of companies that I've worked data -- that I've had

experience working with their data.

It is implicit in this condition that

Do you see that, sir?

Do you see that?

It's just -- was a list of

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Now, you did that for EnPro, didn't you?

Yes.

And when you prepared the estimates, whether it be for

EnPro or anybody else, you're trying to figure out the amount

of money that a company will need to pay current and future

asbestos claimants, right?

Yes, in the tort system.

Right.

order in April 2012 about what we're trying to do here today?

Are you familiar with what Judge said in his

No, I'm not.

All right.

MR. WORF:

Your Honor, the debtors have filed a

motion seeking to exclude evidence of the financial reporting,

and the estimates that Bates White did before the petition, to

the extent they're being used to show Garlock's liability.

understand the court is probably going to hear the testimony,

but we would like to have a continuing objection --

THE COURT:

MR. WORF:

THE COURT:

21
22
23

All right.
-- on the basis of that.
I'll allow your objection, but I'll

allow him to examine, allow his testimony.

MR. NEBRIG:

Your Honor, just for the record, Coltec

would like to preserve that objection as well.

THE COURT:

MR. GUY:

All right.

Your Honor, I would hope you would rule on

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it because I have a great argument, but we'll move forward.

BY MR. GUY:

year.

think is the key language.

and I get lots of objections, but I want us to focus on

paragraph 10.

Now I've been carrying this around with me for over a

I'm hoping that someone will actually focus on what I
I tried it out in all depositions

"The Court anticipates hearing appropriate evidence for

the purpose of making a reliable and reasonable estimate of

the aggregate amount of money that Garlock will require to

satisfy present and future mesothelioma claims."

Do you see that, sir?

Yes.

And I know that there's different theories, but that's

what we're trying to do, correct?

Yeah, that's correct.

And that's what you did pre-petition, isn't it, sir?

Well, it was -- it was -- in terms of reliable estimate,

yes, it was just in two different contexts.

But just to be clear on something, it is not I who is

trying to present an estimate of Garlock's asbestos

liabilities to this court, it's Dr. Bates and he's going to

talk about that --

I understand.

-- when it's his turn.

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But the debtors have put you up as an expert.

you're an expert on these issues.

on it, I want to test what the debtors did pre-petition --

what other companies did pre-petition to answer the question

the judge has posed.

MR. NEBRIG:

We know

I don't want to spend long

Your Honor, just briefly,

Dr. Gallardo-Garcia was not tendered as an expert in financial

reporting for the purposes of direct examination.

going into that at this point is outside the scope.

MR. GUY:

THE COURT:

MR. GUY:

step back.

So I think

Your Honor -Go ahead.

Finish.

Thank you, Your Honor.

Now, can you tell me why it's appropriate -- well, let me

When you did these estimates for EnPro and other

companies as to the amounts that would be required to resolve

the present and future mesothelioma claims, what did you look

at?

Did you look at the prior claims history?

Yes.

You looked at what the company paid in the real world to

resolve those claims, right?

conditions that they face in the tort system, and the -- the

costs that they face in that situation.

What the companies paid in the tort system, given the

And you looked at the historical data that was available

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to you for each of those companies, right?

data that is available.

that they remain in the tort system and they faced similar

conditions, that's the data that we use.

equivalent database, what you looked at for all these

companies including EnPro, we know for this case is the

May 2011 database, correct, the Garrison database?

Yes.

In those cases, first of all that's usually the

And the -- second of all, provided

And Dr. Garcia, in the context of this case, the

significantly more about the case -- the claims in that

database --

for what it is that you looked at.

Well, it's -- it's that database, but we know

I understand.

But I'm just trying to lay the foundation

Now you -- pre-petition you looked at that database,

right?

Garrison database -- or the Garlock database that existed.

said all the good things you did to prepare that database and

all the work that was done, all the quality controls.

just focusing on the May 2011 Garrison database.

Dr. Rabinovitz used to prepare her report; isn't it?

additional sources of information, but it was mainly that

Well, we looked at the most up-to-date version of the

And putting aside your analytical database, I know you

I'm

That's what

For the most part, I think that she used a couple

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database.

imagine the cups there on my right is the Garrison database,

May 2011 database.

left is the Bates White's analytical database; does that work?

For the purposes of answering my question, I want you to

And I want you to imagine the cups on the

Yeah, that's fine.

MR. CASSADA:

MR. GUY:

Did you bring copies for us?

They're on your table.

Now, why is it appropriate when you're doing estimates

for EnPro and other companies that are going to be relied upon

in the marketplace and satisfy securities laws, that you

extrapolate in the future from the history of claims?

that appropriate?

that's available in the -- in those specific instances.

the -- that's -- that also assumes that the company's going to

be facing the same claim resolution dynamics that they faced

historically.

211, at the bottom, line 22.

"Well, first of all, because that data was available," as you

just said.

what will be the expenditures in the tort system for those

defendants.

Why is

Well, it's appropriate because that's the information

Now

In fact, in your deposition, if we can turn to page 210,

Line 22 through -- you said

"And second of all, because we are forecasting

So that was the data we used," right?

Yeah.
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I want to focus on EnPro.

You did this, what, starting

in 2009?

with financial reporting -- with EnPro's financial reporting

estimates probably 2007, sometime 2007.

EnPro, and they were used in the securities filings up to the

bankruptcy filing, right?

Well, I started working on the -- with helping Dr. Bates

So you prepared those reports on an annual basis for

Yes.

They were not on an annual basis.

If I remember

correctly, they were done every quarter first, and then I

think -- then we went into annual use.

Now you provided ranges, right?

Dr. Bates did, yes.

And those ranges changed each year, didn't they, a little

bit?

Yeah, there were some changes in the ranges.

Okay.

line 9 through 21.

Now, we could turn to page 212 of your deposition,

MR. WORF:

Your Honor, I don't know if this is

proper use of deposition.

the question.

MR. GUY:

THE COURT:

BY MR. GUY:

He's on the stand.

He can be asked

Your Honor, I'm just trying to expedite.

Go ahead.

I'm really -- so you said there, as to why they changed,

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"depends on the estimates.

used in putting those forecasts together".

2671

We had several statistics that we

Do you see that?

Yeah.

You said, "for example, in the analysis that we

performed, the financial reporting for using Garlock's

history, your basic estimate, for example, the propensity to

sue, in a detailed way by law firms or by jurisdiction, and we

use different periods, and the forecasts varied at the time,"

correct?

Correct.

So this was a fairly detailed endeavor, wasn't it?

wasn't something that you just sort of sat down at a bar and

put on the back of a napkin?

available to us.

it in -- as economists usually do, which is to disaggregate

the data as much as possible to be able to capture the nuances

of the data.

Dr. Rabinovitz used, didn't you, as updated at the time of the

bankruptcy?

yes, for the most part.

that will be provided by Garrison, for example, when the

Well, no, we were -- we used all the data that was

And as I was saying before, we tried to use

In doing that you used the Garrison database that

Yes, the Garrison database.

But we were also -- I mean,

There will be additional information

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Garrison database that we were using was not entirely up to

date, they will provide additional information and then we

will take it into account.

For example, to give an example that is parallel to what

we saw in this case, there were a couple of instances where we

will have the version of that Garrison database in a given

date.

weeks or so, and Garrison will let us know that there had been

additional settlements or additional dismissals of the report

Then there will be -- sometime we'll go on, say three

since the version of the data -- since they gave us the

version of the database that we were using for analysis.

In that case they will give us that additional

information, and then we will add it to the Garrison database

to make sure that we were using the most up-to-date data.

comparative to this case -- just give me a second --

comparative to this case will be, for example, the PIQ

responses about whether claimants don't have a pending

mesothelioma claim or not --

the pre-petition database right now.

that we will have used.

would have used it.

updated your database so that your forecasts would be

The

I don't want to cut you off, but I'm really focusing on

Yeah, but what I'm saying is, that's the type of data

Okay.

If that data had been available, we

So if you got new information, you properly

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accurate, right?

available --

And in fact --

-- to us.

-- when you were asked about the Garrison database, which

is the database that Dr. Peterson and Dr. Rabinovitz relied

upon, which was provided to them by the debtors, you said it's

a very robust and reliable database, that in my opinion

That would be -- yeah, we would be using the best data

exceeds what the quality of database that we would use for

economic research in some other states.

MR. WORF:

deposition.

analytical database.

You said that, right?

Jonathan, I think you're misquoting the

I think he was talking about the Garlock

THE WITNESS:

I was talking about the Garlock

database.

I wasn't talking about the Garrison --

BY MR. GUY:

reliable?

contains, I think it is robust.

information that we used for estimation.

through the responses to the PIQs and the information we

received in this case, we know that the May 18th, 2011 version

is not entirely up to date.

So you don't think the Garrison database was robust and

I think it's a good database.

For the information it

Now it doesn't have all the

And also we know

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Okay.

Now you would agree with me, sir, that if you've

got a group of experts on different sides of the aisle trying

to answer the same question posed by Judge Hodges, they should

be looking at the same database, shouldn't they?

agree with that.

don't you, sir?

I agree they should have access to all the same data.

You agree they should be looking at the same database,

That would be if they were -- if they could agree on the

database, I think that would be a good thing.

Now the

databases they should be looking at is better data, not

incomplete or outdated data.

databases, didn't we?

debtors gave to Dr. Rabinovitz and Dr. Peterson, right?

then we have this database that in the background Bates White

is preparing, right?

The Garlock analytical database.

Yeah.

That's Bates White's database based on the Garrison

database.

same.

not the same?

Now, in this case we ended up with, it turned out, two

We have the May 2011 database that the
And

The analytical database?

Two databases?

But they're different, aren't they?

They're not the

You've got one on the left, one on the right.

They're

We've supplemented the Garrison database with the better

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information that we received through the process, yes.

uses, proprietary in any way?

Can you repeat that question, please?

Are the computer models that Bates White uses,

proprietary in any way?

7
8

Okay.

Now, are the computer models that Bates White

THE COURT:

Why don't we take a break and get that

question when we come back.

Let's just come back at 25 till.

(A brief recess was taken in the proceedings at

11:25; court resumed at 11:34.)

THE COURT:

All right.

Mr. Guy.

BY MR. GUY:

analytical database that Garlock prepared.

was whether that was a proprietary database or not?

that we put together for the case.

it's Garlock's.

free access to that analytical database?

and she didn't seek access either.

expert reports were filed, right?

Dr. Garcia, before we broke I was asking you about the

Well, no, it's not.

And my question

I mean, it's basically the database

It's not Bates White's,

Now, at any point in the case, did Dr. Rabinovitz have

No, I don't think we were ever asked to give her access

Actually we didn't find out about that database until the

Well, I don't know what you mean about "find out about
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that database".

So in all the cases that I've participated,

there is -- there is a debtors' database or an asbestos

defendant database.

the course of the case, usually for all the time, at least in

my experience, that information is used to supplement or

update the defendant's database or asbestos defendants'

database, and that is what is used for analysis.

that's the normal process that we follow in every case that

I've participated.

And additional information is provided in

So, I mean,

Now, how many cases have you participated in, in the

bankruptcy arena, where you had experts representing different

parties looking at a database to derive estimates to provide

to the court?

mentioned, the Plant Insulation, NARCO and ASARCO, those three

cases, my understanding is that all the parties, just as in

this case, received claims data.

additional information that was obtained through discovery or

through some business record from the debtor.

White supplemented that claims data with information that we

collected from the available sources, and we used the

resulting database to do our analysis, just like we do here.

was at least using the same original data, right?

Looking at a given database -- well, the ones that I

They also received

And we at Bates

So, for example, taking ASARCO, in that case, each expert

The same claims -- claims data.

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the left and one on the right.

agree with me, sir?

that one is the Garrison databasebase the other is the Garlock

databasebase.

together, based on the Garrison database.

8
9

Right.

2677

Now in this case we've got two databases, one on

They're not the same, do you

Well, no, those cups that you have there, you are saying

The Garlock database, is what Bates White put

So if you want to use your cups then, you could say that
all the cups on your right, are included in the five cups on

your left, plus more information because we got more

information in the case based on discovery.

I agree with you 100 percent.

Yeah.

information that was provided in discovery, that's true.

you whether it was robust and reliable.

whether you were referring when you said that to the

analytical database, which Bates White had which no one else

had, or the Garrison database that everyone had.

20
21
22

But they're different?

The one -- the one on the left has more

Now the one on the right, there was a question I asked

And the issue is

And I think you said in your deposition, we turn to page

217, starting at line 18:
"I want to be clear about what we're talking about.

When

you got the May 18, 2011 database, which had changes in it

from the earlier databases, correct?

"Correct.
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2

"It had various adjustments and changes made to it,

correct?

"Correct."

Next page.

"And compared to the other databases that you used for

other forecasts for other companies, you would say that the

Garrison database" -- I'm sorry.

8
9
10

Read at the top.

"You looked at that database before you did anything else

to it.

Did you consider it to be a reliable and robust

database?"

Your answer was?

other databases that we had received in this case from

Garrison, it was the best record."

"Yes, I think that for the most part as compared to the

That was exactly what I meant.

So compared in this case,

the May 18th version of the Garrison database is the best

version, that's true.

Garlock's claims, that claims that have been filed against

Garlock, that's also true.

data that we now got through discovery, that is also true, and

that's why we used the data we got through discovery, to

supplement the Garrison database to get to use the best data

that we could get in this case.

focus on what the creditor experts has.

That is, I think, a good record of

Now that it's lacking important

We're going to get to that in a minute.

I just want to

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Go down to the next -- go down to the next page, line 21:

"Compared to the database that you used for other

forecasts for other companies, would you say that the Garrison

database is a well developed and fairly extensive database."

By that I mean, it's got a lot of information in it.

And your answer was:

"I think the database, the Garrison database has a

significant amount of information.

Sometimes information that

is not typically collected in other asbestos-related database.

Through the years by doing the work for financial reporting,

through the comparisons that we made across the data sources,

we were able to determine that the information that is

contained in the Garrison database is substantially accurate."

Do you agree with that?

Absolutely.

Now going back to the financial reporting, those

estimates go out what, 10 years?

Yes.

And that's just something that's set by the accounting

standards?

length of the --

companies that you've worked for, they've already gone out 10

years?

No, I don't think that there are any standards on the

But for all the estimates you've done for all the

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Usually they go out 10 years.

And in forecasting for the next 10 years, you look at

prior claims information, correct, and verdict information?

Yes.

And you use recent claims information, don't you?

Well, we use the full history, not recent claims

information, the full history.

what are the -- what's -- what it is that -- what's the

defendant's situation in the tort system, and how the

And we tried to understand

defendant came to experience the litigation that we observe in

the data.

And who makes the decision how far back you go?

Well, that's based on the data analysis.

asking specifically about the work that we did for Garlock,

that would have been Dr. Bates.

whether you go back to 2005, 2000, or 1990 or 1995, correct?

cutoff point.

scenarios that you can generate based on different pieces of

information, and that's actually one of the sources for the

range that you were mentioning before.

forecast in the future, so we know we looked into the past,

correct?

If you're

So he makes the decision as to the cutoff point, as to

Well, it's more involved than making a decision of a

The full analysis of what are the different

One of the big issues in this case is, you're trying to

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Correct.

The question is how far in the past do you go back, what

is the appropriate -- I think the technical term is

"calibration period".

Yes, I understand.

So, for example, do you use 2005 to 2010, or do you use,

2000 to 2010, right?

"calibration period", yes.

Do you understand what I mean by that?

That's a calibration period?

Yeah, those would be examples of what sometimes is called

It's a temporal component?

Yeah.

Okay.

calibration period did you use?

I don't recall.

You don't remember?

No.

was trying to explain before.

calibration periods, because when we were generating different

scenarios, depending on what was the calibration period, will

be the estimate that we will -- that we will get.

was no single calibration period, if that's what you're

asking.

calibration periods that we might have used back in the day.

use the period prior to 2010?

Now, when you did the forecast for EnPro, what

But there were different -- that's exactly what I

So there were multiple

And there

And I don't remember what were the multiple

For the 2010 securities filings that we've made, did you

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Yeah.

We used the history, yeah.

Did you exclude the history from 2005 to 2010?

Likely it was included, but I wouldn't be able to tell

you whether it was -- we used the calibration period that went

back to 2003 or only to 2008.

give the court true apples-to-apples comparison, that all the

experts need to be using the same database?

That I don't remember.

Now, would you agree with me, sir, that if we're going to

At least they should be using the same information.

It's

clear based on my review of the data, the analytical data,

that Dr. Rabinovitz and Dr. Peterson provided as backup, the

materials to their analysis, that they did not use all the

information available in this case.

this case that you used to supplement your Garrison database,

when did you get that?

the PIQ first started, it was probably sometime in 2011 that

questionnaires started coming in.

is -- the last version of the data, Garrison database is from

May, 2011.

information that we received at different times.

any of her colleagues, we got this new data coming in.

actually think it's very reliable, we've given you a corrected

Now, the additional information that was available in

Throughout the whole -- the whole case.

You know, when

You know, that the data

I mean, we got several different pieces of

So, at any point in time did you say to Dr. Rabinovitz or

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database that you're relying on.

Now we want to make some

further changes, here it is, this is what we've got.

why we think it's reliable.

Dr. Rabinovitz and Dr. Peterson and Dr. Bates, and all agree

that that information should now be included.

everybody agreed to use the May 2011 database.

have that conversation with Dr. Rabinovitz?

parties, as long as I know -- as far as I know, all parties

This is

We'd like to sit down with

Because
Did you ever

Well, so first of all, the -- they received -- all the

received the -- exact same information.

talking about PIQs, had a portal where every party could just

log in and download the information.

everyone.

I know that the Rust,

That was available to

So when you say that we could have let Dr. Rabinovitz

know that more information was coming in and it was reliable,

that was information that she already knew that was coming in

because she received it at the same time as we did.

Now in terms of whether we got together and tried to

agree on a database, we -- we were never asked to reach out to

Dr. Rabinovitz, and Dr. Rabinovitz didn't reach out to us to

see if we were collecting the information, and that we were

standardizing the information that everyone had received.

Now there were a couple of -- there was at least one

instance in which there was an exchange of information between

the experts, and that was when -- that was probably in

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February 2012 when the debtors were going to file a motion to

compel the questionnaire claimants that had substantially

responded to the questionnaire, to submit more information.

At that time, Your Honor had ordered the parties to get

together and to try to agree on which individuals should not

be included in that motion to compel.

And at that time we had communications with -- at least I

know that we have communications with people from

Dr. Peterson's outfit, and that there were more people on the

phone.

I wouldn't know, I wouldn't be able to say who else

was there.

But I know that we discussed the information that we had

collected from the -- at a time, from the PIQ submissions, and we

offered -- we, as in Bates White, offered to give, provide lists

of all the claims that we had classified as no longer being

(indiscernible) claims.

Bradshaw, we provided lists, listing all those individuals,

identifying in which documents we had found the information that

led us to believe that these were not open mesothelioma claims.

We provided lists through Robinson,

And there were a couple of exchanges of information after

that with specifically Mr. Relles who works with

Dr. Peterson.

questions if there were anything that we could basically

review with them, and we never heard back.

that that was the end of it.

And well, after that, we were open to any

So we just assumed

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The parties didn't reach agreement to update the database

as to that issue, correct?

back, so we assumed that they agreed.

So we have a clean record, the parties didn't reach agreement,

at least Bates White and Dr. Peterson's shop, didn't reach

agreement to update the May 2011 database, did they?

Well, we were open for discussion, and they never reached

Dr. Gallardo-Garcia -- sorry.

I want to expedite this.

We were not going to update the May 2011 database

that's -- whatever -- we were talking about the classification

of the claims.

Now, I mean, to update the May 2011 database, that was a

different process, because Bates White is not the

administrator of the database.

from Garrison.

didn't they, the database that you relied on to do the

financial reporting, 2010, right?

Yes.

Garrison database.

doesn't show verdict?

Doesn't show verdicts.

Shows settlement amounts, right?

Yes.

Shows claims, right?

We just received that database

In the beginning of the case, the debtors had a database,

And it shows verdicts, settlements,

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Yes.

Names, that sort of standard information?

Yes.

You had that database, right?

Yes.

And then the following year, because of things that were

taking place in the case, information that you had, you

updated that database, didn't you, or Garrison updated it in

May 2011?

Correct?

Yeah, Garrison.

Yeah.

It was updated by Garrison, yes.

Then they provided that updated database saying, this is

the database.

accurate, you said it in your deposition, most accurate you've

seen, and that was provided to the experts, wasn't it?

That was my understanding, yes.

Now, one of the things that you take the FCR's expert to

task for, concerns settled claims in your rebuttal report, do

you remember that?

Yes, I do.

I just want to focus on the one.

Honor, but we got to get through this case quickly.

24
25

So they updated that database, didn't they, sir?

You should rely on this database.

MR. WORF:

It's

We've got lots, Your

Your Honor, one objection.

We're going

to bring Dr. Gallardo-Garcia back to address his rebuttal

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report after Dr. Peterson and Dr. Rabinovitz have testified.

It may be more judicially economic for Mr. Guy to talk about

his criticisms after he has had a chance to actually present

them.

5
6

THE COURT:

We'll let him decide what he

wants to do.

MR. GUY:

THE COURT:

MR. GUY:

All right.

We can do it later, Your Honor.

Okay.

I don't know whether we'll have time.

can do it later.

THE COURT:

MR. GUY:

Whatever.

Let's just get it out now so we have it on

the record, and I'm just going to focus on the one issue

because we only have limited time.

there --

No, I don't.

Why don't we just pull it up on the screen.

eight, paragraph eight.

Now, in your rebuttal report which I hope you have

Go to page

Now I understand that the debtors are going to go through

this later, but you criticize Dr. Rabinovitz and Peterson

because of the databases they had, right?

Yes.

Well, the May 2011 Garrison database, right?

Not quite.

Databases they constructed for their analysis, yes.

Because they took that database and they made

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modifications to that database to construct their own

analytical databases.

Dr. Rabinovitz, "incorporated relevant information that was

provided by the debtors to supplement the Garrison database

when necessary."

Yes.

So we're talking about supplementing the Garrison

database.

Now, I want to focus on No. 2, "HRA", that's

Do you see that?

We're not talking about the PIQs and the ballots

and all of that.

Because there's a lot of debate between the

parties as to what the PIQs mean; and whether there's

agreement; and how they should be interpreted; and what does a

ballot mean?

We're talking here about supplementing the Garrison database

when necessary, okay?

because she didn't include it, correct?

Yes.

This is your rebuttal report?

Yes.

And your rebuttal report is dated --

April 23rd.

Right.

Correct.

That was when all the reports were filed, February 15th?

Correct.

Is a ballot really a claim or isn't it a claim?

And you're criticizing Dr. Rabinovitz

Your original report was February 15th, right?

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Now, one of the things that you complain about in

paragraph 12, "Reported 427 liquidated and disputed claims",

see that?

Yes.

Both of these numbers are incorrect?

Yes, they are.

Now, what did Dr. Rabinovitz rely upon in her report?

She relied upon the Debtors' response to interrogatories, if

you go to the next line.

Do you see that?

Yeah, I see that.

And you know that because we went over that in your

deposition?

Yes.

Was she wrong to rely upon interrogatories provided to

her by the debtors?

No.

No, she wasn't, was she?

Absolutely not.

But let me explain that paragraph.

The --

You'll be able to do that.

Give me just one second, please.

So the -- I'm not saying -- I'm not criticizing

Dr. Rabinovitz for using that source of data, because Bates

White used that source of data to supplement that Garlock

analytical database.

All the information that is on those

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answers to interrogatories, is also part of the Garlock

analytical database.

What I was criticizing was the way in which that

information was used, because it was used erroneously.

not up to date, a little footnote.

page, Mr. Wolf.

All right.

Now when you cite to why her information is

Footnote three.

Look at that.

Now, the first responses were from 2012.

Same

"Debtors further responses".

What's the date

of the further responses?

Is February 7th, 2013.

When were the expert reports due?

February 15th, 2013.

You're not suggesting that the information that the

debtors updated here -- this is Robinson, Bradshaw, not you.

In fact, Robinson, Bradshaw gave you this information at the

same time, didn't they?

On February 7, yes.

Yeah.

Yes.

You're not suggesting that that updated information was

something that only became known to the debtors on February 7?

was provided to Bates White on February 7.

incorporated on Garlock's analytical database.

I don't know one way or the other.

All I know is that it

And it was

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for the reports submitted in February 15th.

And Dr. Rabinovitz didn't get that until February 7th?

Just as Bates White.

Right.

like everybody agrees that this information is accurate.

relates to settlements with plaintiffs.

between the settlements, whether those settlements took place

or not, correct, right?

I wouldn't know one way or the other.

That is fair.

Because that criticism is, because there is a mistake in

the code when she tried to include that information into her

database.

that.

will be plenty of chance for you --

I thought we were talking about the same thing.

-- if we have time, and it's the debtors' choice as to

whether they want to spend time on this or not.

And they're interrogatory responses, it's not

And there's a dispute

Now --

That's not about the substance of the information.

Dr. Garcia, I understand that.

We're not talking about

What we're talking about are the cups right now.

There

Now, Dr. Rabinovitz got your analytical database for the

first time when Dr. Bates filed his initial report

February 15th, correct?

Correct.

Up to that point of time it had been a secret database,

hadn't it?
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No, it was not a secret.

Well, you didn't tell anybody you were preparing a

different database?

cups, did you?

were using the information available in the case.

don't -- there is no secret about that.

which I participated in asbestos, has gone through the same

process.

You didn't tell anybody you had five

Well, it's not a different database.

There is an initial database.

It's just that we

I just

Every single case in

There is more

information available in the case.

considered for the database that's used in the analysis.

that's the database that we use.

it that's -- I would say rather standard proceedure.

it, correspondence as to when we asked for this information.

So we can figure out whether we were getting what we were

asking for in a timely fashion, or whether it was being

deliberately being held back, so when the expert reports were

filed there was a cute little gotcha.

20
21
22

And

So there is no secret about

I want to call out to the court, so the court will have

I know this letter didn't go to you, sir, but I want to

just get it in the record.
July 26, 2012.

This is a letter from my colleague, Kate

Orr, here in the courtroom.

first paragraph.

That information is

It says, you want to focus on the

"We have completed our review of the debtors' responses

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and objections.

raising these issues in a letter in an effort to avoid the

costs associated with our serving and your responding to

supplemental discovery responses.

work together on these issues to reach resolution."

6
7

We're hopeful that we can

and I'll tell you, it hasn't been very productive.

Let's go to the second paragraph.

MR. NEBRIG:
argumentative.

Your Honor, I object.

It's

He's not asking this witness any questions.

THE COURT:

MR. GUY:

We are

That's been our modus operandi for the last three years,

We have some additional questions.

I sustain the objection.

Your Honor, I apologize.

This case has

been frustrating at many levels.

"As you know, a critical purpose of estimating the

debtors' present and future liabilities is to ensure that an

appropriate amount of money is ultimately placed in trust in

satisfaction of those claims.

doing so is determining the amount debtors currently owe to

present claimants as a result of settlements and judgments."

One important consideration in

See that?

Yes.

We're asking for that information in 2012?

THE COURT:

THE WITNESS:

You ever seen this before?

Not this particular letter, I don't

think so.
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THE COURT:

I suggest you ask somebody that knows

something about this letter, Mr. Guy.

anything about it.

MR. GUY:

2694

I don't think he knows

Well, if you let me put Mr. Krisko on the

stand, I can.

THE COURT:

Well, that's not what we're here for.

This whole line, I mean, if you have some authority that says

that one party's expert is required to give the product of its

labor to the other party, maybe this will be relevant, but

that's not my understanding of the law or in my experience in

dealing with these kinds of cases as a lawyer or as a judge.

I think they're entitled to prepare their own database, just

like you all are.

MR. GUY:

Your Honor, I agree entirely.

They're

perfectly entitled.

But if the court's going to be able to

compare the reports, it's standard practice as Dr. Garcia

said, in this field, that the parties all be looking at the

same data.

to be looking at the same data.

THE COURT:

They can prepare different reports, but they need

No, I think he said that you all were

given exactly the same information he was given on exactly the

same day.

what kind of database you make out of that, that's your own

business.

so, I think has been -- well, it hasn't been terribly helpful

Now what you do with that and how you compile it,

I mean, this whole line, for the last 20 minutes or

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to me, because I don't think you have any legal basis for what

you're complaining about.

MR. GUY:

Your Honor, when we have on

Dr. Rabinovitz, I think we'll be able to explain to the

court --

THE COURT:

The fact of the matter is, you're not

comparing apples-to-apples.

approaches.

ways of going about what you're doing.

You both have different

It would be reasonable that you have different

MR. GUY:

Your Honor, the fundamental part that

we'll deal with this with Dr. Rabinovitz is simply this:

reports are different.

different because they're using different databases, and the

debtor has a different database.

With that, I have no further questions.

THE COURT:

They're not in error.

That's fine.

exactly as I would expect it to be.

anybody short-sheeted anybody.

doing what you do.

MR. GUY:

THE COURT:

That's normal, and that's

It doesn't sound like

You just got different ways of

Thank you, Your Honor.

We'll listen to each other and see where

we go.

MR. GUY:

THE COURT:

They're

Simple as that, Your Honor.

The

I think we made our point.

Okay.

All right.

Mr. Wehner.

CROSS EXAMINATION
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BY MR. WEHNER:

Good morning, Doctor.

Good morning.

We've met before.

the ACC.

My name is Jim Wehner.

I'm here for

Doctor, at the beginning of your testimony today, you

said in response to something that Mr. Worf said, that even in

aggregate estimation, there's no reason to ignore the details;

is that what you said?

Yes.

It's something you believe in?

Say that again, please?

That's something you agree with.

Yes, I agree that you have data, detailed data, there's

no reason for ignoring the detail.

Garlock case, contains information about the sites at which

claimants had exposure; is that right?

Yes, it's got some information about that, yes.

It's got information about the dates at which those

claimants worked at those sites; is that correct?

That's correct.

Now, you know that some asbestos trusts have something

called an approved site list; is that right?

This big database that you have constructed for the

Yes, I do.
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In fact, Bates White has approved trust site lists in its

possession; is that correct?

lists that have been published by some trusts.

worked at them, a trust will presume that you had exposure to

the product the trust is responsible for, right?

That's my understanding.

In fact, Bates White can take those site lists and

Yes.

My understanding is that we have copies of the site

These approved site lists are lists of sites that if you

compare it to somebody's exposure profile and predict what

claims they will make to trusts; is that correct?

Scarcella, does that type of analysis.

didn't he?

He had some role, but not significant.

He worked on the part of the database that had to do with

trust claims, didn't he?

of the database that has to do with the parties that were --

the party data that was collected from the multiple sources,

yes.

those aren't incorporated into the Garlock analytical

database, are they?

Yeah, well, we have a person at Bates White, Mr. Marc

Mr. Scarcella worked with you on this Garlock project,

He worked on the part of the database -- yeah, the part

Now, although Bates White has approved trust site lists,

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The site lists?

Yes.

part of the analytical database?

No, they are not.

You have not conducted an analysis of what trusts the

claimants in the Garlock analytical database could make a

claim to, based on the site information that's in the

database, did you?

The approved site lists for trusts.

Well, we did some analysis of that.

They're not

But the result was

that the names of the sites were reported in a way that made

it extremely difficult to be able to identify the site on any

site list.

I'm looking at page 134 of your June 19th deposition, at line

12.

16
17

When Mr. Swett asked you in deposition about this, and

Mr. Swett asked you:

"Did Bates White make use of any such trust-approved site

lists in constructing its analytical database for Garlock?"

You said, "No, we did not.

"Did it make reference to any such trust-approved site

lists for purposes of its analysis?"

And you said:

"No."

Did I read that correctly?

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25

Correct.
MR. WEHNER:

Thanks.

That's all the questions I

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have.

THE COURT:

MR. WORF:

Mr. Worf.
Very brief redirect, Your Honor.
REDIRECT EXAMINATION

BY MR. WORF:

point that Jonathan -- Mr. Guy was spending time on.

record I want to show page 136 of Dr. Rabinovitz's deposition.

You were present at that deposition, weren't you,

Mr. Gallardo-Garcia, I think the court understands the

For the

Dr. Gallardo-Garcia?

Yes, I was.

And if you could expand the part that starts with, "By

Mr. Cassada".

"We had just finished up, Dr. Rabinovitz,

talking about your methodology and the different steps in

it, and you talked about the six steps.

about the work that you did with the database, the

deduping and all that?

You also talked

Yes.

What do you do with the data in the database

once you're doing your report?

separate analytical database?

Do you create your own

Yes."

Do you understand that Dr. Rabinovitz and Dr. Peterson

had their own analytical databases that they constructed using

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the Garrison claims database?

reports, they included copies of those databases, and they

included the code that they used to construct those copies.

And obviously as Your Honor was saying, that they used

initially the Garrison database, but they ended up with

something different from the Garrison database.

with -- obviously with -- not with all the additional

information that we considered.

Yes.

They -- on their underlying materials for their

Although

Did you receive copies of their analytical databases

before they served their expert reports on February 15th,

2013?

reports.

Peterson and Dr. Rabinovitz have testified to talk about your

points about their analytical databases.

No, we received them after they had submitted the

And like I said before, we will bring you back after Dr.

Mr. Guy was also asking you questions -- I think he was

using the phrase, how far in the past would you go, when you

were doing the financial reporting work for EnPro.

Do you remember when you were performing those forecasts,

that you used database prior to 2000 in order to calibrate the

model?

explaining before.

Yeah, we used the whole history.

That's what I was

That is not that you just do the analysis

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with the most recent period of time, every single time.

Because you need to understand what's the process that

generates those claims, and what's basically the -- through

data analysis, what is the -- what might be the most relevant

portion of the history for use.

consider the full history.

handle on the potential impact that trusts would have on

Garlock's expenditures on asbestos claims?

So in that sense, you have to

Did you-all use the pre-2000 data in order to help get a

Yes, in those -- so when we were performing that work,

that the information from trust was not available, as we know

because -- well, in the end we received that information

through discovery in this case.

But to try to account for the fact that the trusts will

have some effect on future settlements, one of the things we

did was to look at the longer Garlock history in the 1990s.

MR. WORF:

Thank you, Dr. Gallardo-Garcia.

THE COURT:

No further questions.

Thank you.

Thank

you.

THE WITNESS:

THE COURT:

You can step down.

Thank you.

Let's try to keep going until about

1:00, if we could.

MR. CASSADA:

THE COURT:

Very good.

Makes the afternoon go a little quicker.

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MR. CASSADA:

Your Honor, the debtors call

Dr. Charles Bates.

CHARLES BATES,

Being first duly sworn, was examined and testified as follows:

DIRECT EXAMINATION

BY MR. CASSADA:

you reintroduce yourself to the court?

Yes.

By whom are you employed?

I'm the chairman and founder of Bates White, LLC, a

Washington, DC consulting company, specializes in economics

and econometric consulting.

Dr. Bates, you've testified in this case before.

Would

I'm Charles Bates.

MR. INSELBUCH:

Your Honor, could he speak a little

bit better into the microphone.

hearing.

THE WITNESS:

MR. INSELBUCH:

I'm having difficulty

Is that better, Mr. Inselbuch?

Yes.

Thank you.

BY MR. CASSADA:

You're a founder of Bates White?

I am.

Could you describe a little bit more about Bates White's

business and the type of work it does?

consulting company.

Yes.

Bates White is an economic and econometric

It was founded by my partner Halbert

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White and me.

year after a long battle with cancer.

My late partner who died, unfortunately last

He was my mentor at University of Rochester where I got

my Ph.D in econometrics.

started doing work together on consulting projects at various

times.

questions, or questions I thought would be of special interest

to him, I would bring him into the cases.

Over the course of years, we had

When I had particularly tough analytical types of

Bates White was founded 14 years ago.

We have

approximately, at this point, say about 170 employees, for the

summer we're closer to 200 because of the interns we have on

staff.

fourth year of college come and work with us to learn about

our business and we get a chance to look at them closely.

These are generally people between their third and

We are by reputation being a firm that specializes in

high-quality large litigation work, particularly when there

are large and deep analytical problems associated with what

has been called in the press "big data".

We have, essentially -- we were informed recently by a

consultant that we hired to help us figure out our strategic

direction on our database and IT structure, that we have more

of a database profile of Fortune 500 companies than a small

consulting firm, because of our use and management of data.

The database that's been talked about in here, for

example, in this firm -- I mean, in this matter, is actually a

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relatively small database, relative to what we get when we're

dealing with terabytes of data that are associated with things

like credit card transactions, healthcare observations in

data.

The firm incorporates six major practice areas, of which

the work we're here on asbestos work is the environmental and

product liability area.

8
9

Our largest practice area is in the area of antitrust,

where we work on mergers matters.

And in particular, have a

fairly robust recovery practice, helping firms sue other firms

to recover from price fixing matters that's actually the basis

of the founding of the firm was the work that we did on the

Vitamins antitrust case.

practice, healthcare practice, general litigation, and also

have a small but robust energy practice as well.

And so the corporate finance

Thank you.
Can you describe what we asked you to do in connection

with this estimation trial?

I was given.

relationship between Garlock's settlements and its liability.

This is an issue that's been well studied by economists over

the years.

24
25

Well, we had -- essentially there were three charges that

One was to actually estimate and analyze the

Secondly, asked to forecast Garlock's legal liability for

pending and future unknown mesothelioma claims.
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And finally I was asked to determine whether Garlock's

proposed funding of $270 million would be sufficient to

satisfy pending and future claims under the debtors' plan of

reorganization.

Did you form opinions on each of those three charges?

I did.

that Garlock's settlements are multiples of its legal

liability.

to me by Robinson, Bradshaw, which we'll address shortly.

First, with regard to the first issue, I found

That's a term that's defined by definition given

Second of all, I found that those legal liabilities

defined as Garlock's asbestos liabilities under the definition

that they gave me, are less than $125 million net present

value discounted at a 3 percent real discount rate, and in

fact, it's very significantly less than that amount as I will

discuss in my testimony today.

And third, that the funding is sufficient to satisfy the

pending and future claims under the debtors' plan of

reorganization.

How much is the debtors' proposed funding?

Proposed funding is $270 million.

of money required for that purpose is less than that, and

gives a contingency for unforeseen circumstances.

disciplines you brought to the work you have done in this

case?

Thank you.

I find that the amount

Can you describe for the court the

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economics.

because we're dealing with the asbestos claims resolution,

which has an economic process, which the parties make

decisions based on their costs and their benefits.

the study of economics.

There's two principal disciplines.

First one being

The economics here is -- comes -- is germane

That is

We bring to bear on that, basic economics which comes

into play, as well as particular aspects of it which includes

things like special fields of law and economics where these

issues of decisions regarding settlement and liability have

been well discussed.

the role that the various parties play when they're

negotiating settlements.

As well as game theory which discusses

These are also well-studied fields.

The field of game theory's the mathematical field that I

think was probably popularized in the movie "A Beautiful Mind"

about John Nash and his discussion -- the movie there on that.

As well as -- in looking at this I also considered the

fact that we have a system here of decisions that are made

involving multiple parties.

particularly in the area of general equilibrium

studied in the past, informs my thinking on these kinds of

matters.

are covered in the economic area.

So some of the expertise,

theory,

These are rather the subject area of matters which

In this circumstance, and in particular we want to

measure these processes, and that is actually the area of my

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particular expertise, as well, which is the area I worked my

Ph.D dissertation, econometrics being the subject about how

you measure the economic processes, primarily based on

real-world data.

Because generally, though there is a field of

experimental economics, most of the data that you rely on is

broad databases of real-world data.

mathematical modeling of economic and financial systems,

former journal called Econometrica, about the mathematical

It's about the

model building in that particular area.

And we used its model about how you do that to predict

and model individual decisions, business decisions.

say individuals, we mean here not just consumers and

economists, but other economic agents, like firms, in their

decisions.

When you

But to do that in a statistically reliable manner.

That was the subject of my academic research when I was

an academician.

That's what I published papers on, is that kind of methodology

about how you do that.

issues that surround real-word data, the multiple dependencies

and homogeneity of that data that you can't control for like

you would in a scientific experiment.

on.

That's what I wrote my dissertation on.

Taking account of the -- all of the

We'll talk more about that, obviously, as the day goes

Does the proper application of econometrics require you

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to employ a scientific method?

In my work I deploy this daily, and it represents a lot of my

approach to virtually all problems of which I work.

Well, the field of economics and econometrics use that.

They start with basis of observation, understanding of

the situation, but observing something.

We get an

understanding of the problem that we're addressed -- that

comes through our observation.

those -- what might explain those problems.

We form hypotheses about how

For example, here

I can discuss several situations where I've done that.

fact, multiyear research programs related to relationship

between nonmalignant claims and the underlying disease process

or is it an economic process.

We go through the data collection processes as

Dr. Gallardo-Garcia discussed here.

processes done here, as I say, an integral part of what we do.

We develop models.

The data collection

We develop both models at the more

general level, having to do with the model that I'm going to

talk about here today, which has to do with the determinant

relationship between settlement and liability that comes out

of the literature of law and economics, but also more

specifically in terms of modeling -- statistically modeling

individual situations like the way verdicts may relate to

underlying claimant characteristics and such.

Within that you use valid statistical hypothesis testing

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as a way of knowing what it is that you're looking at, is this

simply the result of random chance, or whether or not it's

actually something that has a predictable association

associated with it.

And then of course we work on validating the model, both

through external observation, as well as statistical methods,

as well as how it fits in with the what we know about the

situation more broad.

So did -- you followed a scientific approach or a

scientific method in each step of your estimation work?

I do it every step.

academic background?

University of California San Diego.

interested at that time in abstract mathematics.

in my studies of abstract mathematics, that my teaching

assistants turned out to be 16- and 17-year-old boys who were

more math geniuses who worked on Navy NSA programs.

looked for more of an applied field that I could use it in,

got interested in the economics, because that's a field where

you could actually do applied abstract mathematics in a more

applied manner.

San Diego in economics which were mathematics based and got a

I did.

Okay.

Sure.

I mean, it's integral to what it is I do and how

Can you briefly describe your education and your

I started out as a mathematic major at the

I was primarily
Found that

So I

I wound up taking the graduate courses at UC

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2710

second major in economics as well.

From there I went to the University of Rochester to study

with a famous general equilibrium theorist named Lionel

McKenzie; given my mathematical background as well, his

program of study that he had there, that seemed like a good

place for me to go.

of applied general equilibrium theory called international

trade theory.

I received a Master's degree in the field

And it was while I was there that I met Halbert White who

was a new assistant professor there.

became his first research assistant on his research into

econometric methodology at the time period when he wrote a

number of what are seminal papers and the most widely cited

papers in the field of economics today, during that time

period when he was there.

While I was there, I

I left University of Rochester, I didn't really finish my

dissertation right away, but through a few months on the road

having to deal with some health issues, went and convalesced

in San Diego where I worked with Dr. White finishing my Ph.D.

in economics and taught at the department there, and then took

the position as assistant professor at the Department of

Economics at Johns Hopkins University where I did my research

into econometric theory and taught courses on econometric and

international trade theory.

A little bit more on that.

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Could you describe the focus of your education and

research that you just described?

particular expertise in economics started off with a --

essentially a general interest in economic mathematical model

building.

mathematics department at UC San Diego which had segments on

them in economics, so I got more interested in that.

Well, I briefly touched on this in my background.

I took mathematical and modeling courses from the

Particularly went to the study that is the field of

general equilibrium theory, which is about not individual

decisions, but it's more broadly about how these decisions of

multiple agents within a decision-making system like an

economy interact with each other, and on a meta level,

international trade and how those particular systems interact

with each other, accounting for the interaction of the

decision from the parties.

So, for example, it's not just about how a price might be

formulated within individual markets, but how there are

multiple markets and those interact with forming a general

price system.

There are elements of that in that study.

Then of course as I describe my expertise in

econometrics, I believe I touched on that already, but in

particular it's the application of statics and mathematics to

modeling, to analyze the economic and financial problems.

In particular, much of what we do within the field of

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econometrics, is try to get a handle and estimate things that

are not directly observable, such as the impact that something

like education may have on earnings, or the impact that race

may have on job opportunities.

These are areas which are well studied in that field, but

they're not directly observable, what effects are.

You have

to tease out the results through the myriad of a term we heard

in this courtroom already, confounding factors.

econometrics is specialized in.

That's what

peer-reviewed literature regarding econometrics?

articles that I've had published in peer-review journals.

this point the titles of them are rather daunting.

departed from the ivory world of education and academics?

academic, because I was involved with fairly abstract

mathematical methodological research and I was essentially

hired by KPMG in 1991 to help them work on figuring out how to

estimate future asbestos liability as a part of a retention

they had as part of the National Gypsum bankruptcy

proceedings.

24
25

Have you done research and published articles in the

I have.

This slide which I prepared here, shows the four

And would you summarize your employment since you

Yes.

I like to describe myself as a bit of a reformed

I found that this work was something that I really

enjoyed tremendously.

I liked being able to apply the

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analytical skills that I had developed, and a lot of the

computer modeling, both the simulation modeling that I was

doing while I was at Johns Hopkins.

applications worked in this application as well.

I found that those

I rose quickly through ranks at KPMG to become the

partner in charge of my own practice called the Economic

Analysis Group.

8
9

I was briefly enticed away from KPMG to try and bring

more quantitive and analytical methods to strategy consulting

and operational consulting at A.T. Kearney.

While I was there

I was approached by a lawyer that I knew regarding a case that

he was working on that was -- which eventually turned into the

vitamins antitrust price fixing case, which was essentially to

try and recover from several companies, European companies for

domestic companies, such as Tysons and GMC.

been buying bulk vitamins and had discovered that the prices

of those were fixed in a cartel, primarily chaired by

Hoffmann-La Roche.

Kearney.

able to do it at A.T. Kearney and it seemed like a good

opportunity to step out and start a firm with Dr. Lange.

court, could you describe your experience in estimating future

asbestos-related personal injury wrongful death claims?

Companies had

Hoffmann-La Roche was a big client of A.T.

So in order to do that work, I was not going to be

Now focusing more on the issues that are before this

I can.

As I mentioned before, I was hired at KPMG to

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figure out how to estimate future asbestos liability as part

of the National Gypsum bankruptcy.

At that time there had been a number of different

bankruptcies and there was a number of different approaches

that people were taking trying to estimate the problem.

an opportunity working with the team there to start from a

blank slate and work upward from that.

8
9

I had

When I arrived there, one of the pieces of research that

the team had already uncovered was from the work that was

being done and published by Dr. Nicholson and his colleagues,

and Irvin Selikoff and his colleagues, at the Mount Sinai

School of Medicine relating to a particular kind of modeling

exercise called a microsimulation model that's fairly often

used in a lot of economic areas -- economic fields, to

estimate what the future incidence of mesothelioma would be,

based on the historical use of asbestos.

as I said, it's a microsimulation model.

That's an exercise,

What that meant was, that they would go out and they

would estimate the populations of people who were exposed to

the disease based on a lot of the research that we've seen in

the science phase that was presented here about the

relationship between the dose of asbestos, to the incidence of

disease, the populations that were studied, and what the level

of their exposures were.

And Dr. Nicholson and his team -- it sounds like a number

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of those folks who were testifying in here participated in

some of that initial research as well -- put together this

comprehensive model that took estimates of the population

through the 1940s, '50s, '60s and '70s, based on a lot of data

that's maintained by the people like the Bureau of Labor and

Statistics and others on the size of the population that

worked in various occupations.

They formed estimates of the incidence of disease

associated with those -- well, the incidence of exposure --

excuse me -- the exposure to asbestos within each one of those

fields, based on their understanding of that, and then put it

within a computer model which would statistically age the

individuals through a simulation process.

individual would get a dose of asbestos from working in a

particular industry or occupation, based on what their

research was about how much they would get, it would age them

a year.

likelihood of them dying of natural causes, versus what they

call -- this is where the epidemiology part is, versus what

they would be -- the likelihood that they would die based on

their sort of cumulative exposure to asbestos and the length

of time that it had been since first exposed.

Where each

It would then use actuarial models relating to the

That model was continued to run with additional --

through each one of the individuals within the population

throughout time, until the last of them through an actuarial

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basis believed to have passed away.

2
3

They had estimated there were about 27 million people in

that population, for which that was the case.

I took that initial model -- we had coded their initial

model that they had when I had arrived.

So I took that model

and built a more sophisticated computer program model version

of that, and doing my own research went and visited with

people at -- the researchers of the National Cancer Institute

with Dr. Nicholson himself, with individuals that we've heard

about talked about in this field, Victor Roggli and Bob

Spirtas and Janet Hughes who have all done

research in epidemiology, done research on them, asking them

about their understanding of this model and how well it

performed.

At that point nobody had actually tested the model in any

way.

So for the purpose of using it, it was natural in my

methodology to test these things.

the National Cancer Institute, a data source that would

provide a good basis for testing the model.

And I discovered through

So I built the model and tested it against what is called

the SEER data, which is a cancer research program to basically

accumulate as much data as they can about the incidence of the

disease and various kind of disease.

24
25

And one of the disease categories that they developed in

the '90s was a -- well, in the '80s, was actually keeping
Laura Andersen, RMR 704-350-7493

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1
2
3
4

2717

track of the mesothelioma diseases that were there.

And so this gave a basis of testing the forecasts of his
model to the incidence of disease.
Now, you don't have direct measure of the incidence of

disease in the country as well, only a sample of hospitals

around the country, hospitals which participate in the SEER

program.

what the total incidence of disease is.

You also have to use a statistical basis to estimate

This was a fascinating research program that got started

there because you have issues of whether or not the

populations where the hospitals are, which are in SEER

program, actually are representative of the populations of

people with incidence of disease.

And when we first started doing the testing of it, it

looked like the model gave us on the aggregate basis, a pretty

good -- estimates of what the incidence of disease it was

based on what we could tell within the variations we had, but

there were some aspects that didn't line up very well at all.

In particular, when you looked just below the surface a

little bit, it didn't line up with the age of the population

of the people who had the disease, versus what the model

predicted which was quite off.

issue that they were using data from a limited sampling.

by expanding, sort of, from the datasets that we knew of our

study of economics, and bringing in more relevant data we

It turned out to be a dataset

Laura Andersen, RMR 704-350-7493

And

2718

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1
2

could improve that.

But in doing this testing, so on, I consulted with

Dr. Nicholson about that.

become, essentially, topics of essentially 20-year-long

research program that I have done.

of disease was related to background.

through some researchers that they couldn't find -- as

Dr. Welch mentioned, they couldn't find the occupational

history associated with the asbestos exposure which was

10
11

He raised issues with me that have

How much of the incidence

Because it was clear

associated with disease.

The incidence rates for women were too high, relative to

the -- their population and the representations in the

populations within the work force.

line up very well.

So that didn't seem to

He also had some updates to what he would suggest that we

do with regard to the instance of -- excuse me, the exposure

levels for some of the populations.

the exposure levels that they had for the automobile workers

that he put in the original model were too high and he gave me

an adjustment factor to those.

He believed, for example,

The other thing, of course, was that the populations were

getting older and the people were living longer and it was

necessary to expand the model back into the 1930s to actually

capture the populations of people who were not representative

of the model.

Because this disease -- the other part of this

Laura Andersen, RMR 704-350-7493

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1

research was showing that the incidence of disease, and the

increase in risk of the disease was that it was continuing to

grow over the -- as the population -- as people got older and

older.

So a number of these features came into the model.

decided at that point, we came up with a much better model --

in terms of its comprehensive thing, we had more detail

associated, it was more finely granulated on it.

left some issues for us, particularly having to do with

But it still

background population and reconciling the aggregate data with

the -- what the model predicted at the time based on the

research we knew.

At that point we decided that the best approach to use in

the estimate done there to get a handle on the occupational

exposure to asbestos was to use the adult males, the male

population as opposed to the males and the females, and that

was the basis of the forecast we did on that.

That model was -- the work that we did there was -- I

talked at that time with folks like Dr. Peterson, and I know

Dr. Rabinovitz has relied on that model as well.

continued to work on that through a research program.

particular what I --

Excuse me.

Well, it's been called -- referred to as the

KPMG/Nicholson model.

But I've
In

Does that model have a name?

I think that's a name that others have

Laura Andersen, RMR 704-350-7493

2720

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1

given it.

We just called it, essentially, the Nicholson --

the updated Nicholson model.

reference that's how it's become to be identified.

model and some about the KPMG/Nicholson model?

White version of that, which is based on our research, is more

up to date based on the science that we have.

particular, through this case, we've been able to expand that

But because, I think, through

So in this case the court will hear about the Nicholson

Yes.

And then we also refer to what we have as a Bates

And in

model in one important area through that research.

to relate back and to continue with that just another minute

with the research we did there, back in the 1990s the issue

was not all about mesothelioma.

But just

In fact, somebody -- a company like Garlock only had

10 percent of its expenditures associated with resolving

claims in the 1990s was due to mesothelioma claims.

The big issue, from a financial perspective on this, was

about things like the nonmalignant claims in particular.

that was, at that time at KPMG, a big deal trying to figure

that out.

And

The trouble with that is, that they didn't have a model

like Nicholson did for the nonmalignant claims.

So the real

question was, how do you model that process.

another area of research that I've engaged in over the last 20

years.

That became

Which through the course of my work has led to some

Laura Andersen, RMR 704-350-7493

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1

interesting discussion -- excuse me -- some interesting

results that really led us to show the importance of the

economics in dealing with -- in modeling these situations.

At the time when we were doing it there, we were trying

to model it -- at KPMG we were trying to model it as a

biological process, and -- because these were claims that were

essentially the result of prevalence of disease, and something

that could be observed, but they weren't really leading to

death.

10
11

And at least in only a fair small number of cases as

near as we could tell, and their numbers were growing.

And as I worked on matters throughout the 1990s, each

time we went and looked at another set of data with regard to

this, the number of those cases kept growing at a rate that

went up year after year, which was not essentially predictable

with any kind of a modeling process that we had seen before.

So when I started the company at Bates White, I now had

more control over my budgets, and how I could dedicate some

money and effort into doing this research.

effort into trying to understand that.

And we put some

One of the things that we uncovered through our work,

particularly through my work with financial reporting was done

through U.S. Gypsum, which gave us access to work with the

claims data from the Center for Claims Resolution, which had

rather detailed data on the sites.

they kept track of the sites of where the individuals came

And the sites in which --

Laura Andersen, RMR 704-350-7493

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1

from when they made their claims, because they were a

consortium of about 20, 21 different companies who would

divide up the expenditures that they had, both from the

defense basis and on the indemnity.

to divide the expenditures up had to do with what they thought

would be the relative share that each one should pay to that.

And in many cases, you know, they had historically

used what they had historically paid to the environment as a

basis for doing that.

And the way they agreed

But they kept getting claims from new

areas that they hadn't seen before.

they would understand where the sites were that the claims

came from, and whose products within that group came from

those sites, and they would use that as a basis.

a detailed database of the sites where these workers came

from.

And on the basis of that

So they had

And we, by looking at that site data, we discovered a

very interesting pattern.

We would see that, you know, for

claims such as the large sites where you could get enough

claims where you could see the mesothelioma claims, you would

see a relative steady flow of claims that looked like a

biologic process.

But the nonmalignant claims you'd see virtually from --

you look at the time period from where they came from, there

would be virtually none and then there would be a huge spike

in the number of these, and then it would go back down to

Laura Andersen, RMR 704-350-7493

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1

barely nothing and subsequently you'd see very little.

Well

these were the recruiting sites, that -- recruiting sites.

Well then it turns out that what was going on was, there

were companies that were coming about that would go from site

to site, and they would essentially do a -- essentially a

recruiting site where they would set up a van to do screenings

of the type that Dr. Welch was talking about in her testimony.

And on the basis of those sites, they would collect -- sign up

individuals who would basically form the basis of all of these

10
11

nonmalignant claims.
And as that became a business that expanded throughout

the country, it was essentially a process here -- an economic

process was more akin to a gold rush.

businesses develop.

find these sites and get these sites before others would.

You would have

They would have -- they would try and

In some cases they had particular relationships --

particular law firms had relationships with unions in the

area, and so they would have particular access to a particular

site.

But that process we could track, essentially through

looking at some of this data.

On the basis of that we formed

a new hypothesis about the way in which the nonmalignant

claims were generated as an economic process through this

business, in developing this business, as opposed to a

biological process which was more akin to what we were seeing

Laura Andersen, RMR 704-350-7493

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1
2

with the mesothelioma claims.

Now the number of mesothelioma claims was increasing as

well, but at a rate it just looked like we were getting a

larger and larger portion of the disease out of the -- that

was a known level of disease.

which just seemed to be expanding as an economic process.

developed the prediction that it would not just be a process

that would forecast -- that you couldn't just extrapolate this

process into the future, any more than you could take the

As opposed to this process,

incidence of disease from the mesothelioma and the fact that

it was increasing during this period of the '90s, just

continue to extrapolate that into the future.

understand the underlying process which was generating it so

you knew what the future pattern was doing.

You needed to

When you do that with a gold rush, you get the very

predictable outcome that the gold-rush-type model, the

economic model, which was that this would grow at an

increasing rate until you reached a point at which there was

nothing left to get, and then it would collapse fairly

rapidly.

would be the pattern that would occur.

exactly what happened.

Our research in this area was predicting that that

And in fact, that's

In fact, about the time period when we were starting to

do this research, was really at the period where it was

reaching its peak.

We didn't know that until several years

Laura Andersen, RMR 704-350-7493

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2725

later because the incidence of -- the claims essentially

fell -- came after that period.

we would get, we'd see where the original recruitment dates

were -- diagnosis dates were.

When was that, Dr. Bates, when you were --

This was in early 2000s.

background at that time while we were talking about that,

forecasts were being made, models that we were using, models

that others were using, were predicting many more claims into

10
11

And we saw through the data

What was going on in the

the future.
And in fact, what was going on in the background was,

that the number of these cases that were being recruited was

dropping rather precipitously as the sites to which these

recruitings that took place became exhausted.

So those were a couple of kinds of things that were going

on at the time, and that's part of the research program that

we have.

Now we've continued to maintain a bit of a research

program on this.

insight into the relationship between what is occupationally

caused, and what is background mesothelioma.

In particular, we have basically gotten more

In particular, through some of the discovery -- the

research that we did as part of this case, we were able to

actually build a better model there and came across

epidemiology that allowed us to basically both combine, based

Laura Andersen, RMR 704-350-7493

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1

on some research that came about fairly recently, relating the

relationship between the age of the claimant and type of model

relating age of claimant and the likelihood of getting the

disease independent of asbestos exposure.

So what we have done is used essentially econometric

techniques which allow us to put both models into the same

model.

model with updated research on population, including

populations that Nicholson did not include.

One would be a model -- essentially a Nicholson-based

Because he had

both direct and indirect exposures -- excuse me.

individuals in his work force that were directly

occupationally exposed.

secondary exposure from take-home things.

that in his model.

giving you the total number that you would expect of incidence

of disease, but you got the background as well.

He had only

He didn't include bystanders and

He did not include

So, you know, wouldn't expect it to be

So now we have two competing models about how the

incidence of disease could come back.

So we used an

econometric technique to put both of these models in and fit

it to the SEER data, and it has allowed us for the first time

to actually come up with what we think is the best estimate.

Now, the amount of disease, epidemiological, that's

attributable to asbestos-related occupational -- but more

generally actually, anything associated with -- whether direct

or indirect -- associated with the use of asbestos in the

Laura Andersen, RMR 704-350-7493

2727

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1
2

United States and how much of it is background.

You know, hopefully this fall -- sometime when we get

time after this case is done, we'll be able to put that

research out for review within the epidemiological community

as a whole.

We also have done a lot of work on -- we spent a lot of

money on research in developing models for the purpose of

estimating insurance allocation.

Within this litigation there is a lot of controversy over

whose insurance policy pays and when.

because, of course, as Your Honor's heard, there's been a --

there's a long latency period between when individuals are

first exposed to asbestos and when they get it.

company has their liability policies over a number of years --

and their product liability policies they have over a number

of years, a lot of insurance law has developed over how those

policies should all come into play.

them should pay toward any individual who essentially was

exposed years ago, potentially has asbestos in them for all

those years and gets the disease at some point.

That comes about

And when a

Then how much each one of

And that has actually turned into a fairly -- a fairly

robust field of litigation, having to do with which insurance

company pays.

played a very instrumental role in building those models that

we use at Bates White.

And having those models and Charlie Mullin

Laura Andersen, RMR 704-350-7493

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1

Dr. Bates, have you published research in the area of

asbestos litigation?

not peer-reviewed publications because there are really no

journals for doing this kind of -- that I'm aware of --

publishing the kind of research that we've been doing on the

litigation environment itself.

You're referring to Slide 12?

Yeah.

Yes, well published here in a different sense.

This is

Slide here which I have five publications.

There's a sixth one that I think got left off my resume in

2008 that has to do with essentially an update on the

litigation environment, more of putting out just some numbers

that -- what we saw about the trends that were going on within

the environment.

But this is a series of papers that's come out of the

internal research that we were doing.

Particularly started in

mid-2000s, after the bankruptcy wave that Your Honor's heard

talked about here.

number of these bankruptcies, became aware that the rules that

were being written into the TDPs were going to create a

potentially completely separate compensation system, that

would basically pay claimants separate from their tort claims,

even though the trusts were set up to cover, essentially, the

share of the liability that each of these entities that had

gone through bankruptcy proceedings were set up to pay.

It became -- as we were participating in a

Laura Andersen, RMR 704-350-7493

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1

So we came up with this rather nice catchy title of

"Having Your Tort and Eating It Too", from one of the guys on

my staff that came up with that, he was rather proud of it, so

we used it.

your econometric publications.

in journals like the Mealey's publication that are more like

commentary that we put out, as a purpose of just disseminating

the work that we have done amongst the people who work within

the field of -- work within this litigation -- companies.

I suspect some of those on the other side of the aisle have

read these works as well.

These titles are at least a little more provocative than

Yes.

Yeah, they are a little different.

These were put

And

And they came out of -- in many cases -- either the

research we're doing or some came out of the controversies

that -- questions that were raised, hypothesis, if you will,

that were raised in various conferences at various times.

The one in the middle there is called "Show Me the Money"

actually came out of -- result of some testimony that

Dr. Peterson gave, I think back in the Armstrong trial where

he was reporting on the amount of money that he thought

that -- he was saying that the Dan Myers was saying could get

recovered by individuals in the asbestos, mesothelioma claims

would get in asbestos tort litigation.

So we were not able to have that -- get access to that

Laura Andersen, RMR 704-350-7493

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1

data.

couple of prominent asbestos attorneys, John Cooney and Perry

Weitz, about whether or not they would show me their data

where they claimed what those numbers were.

do it and try and get a handle on it through indirect means,

and that's where "Show Me the Money" came from in that paper.

Through a rather spirited debate between me and a

And so I had to

The first two up there are the last two publications that

we have out, and they were essentially tracking the changing

and the pattern of naming that was taking place, the evolution

of new individuals that were being named, and essentially

their relationship between their tort claims and names of the

trust claims that they would have.

The first one is in fact a paper that essentially

outlined the techniques that Jonathan Guy was asking

Dr. Gallardo-Garcia about a little bit today, relating to the

work that Marc Scarcella does and how we can go about trying

to figure out what the amount of money that an individual

might recover through a use of site list based on work

history.

So we put that out in a paper in 2010.

And in that year we started actually getting --

individual companies would start to hire us for the purpose of

seeing if we could help them figure out how much money the

individuals would get, and what sites the individuals would

actually have exposures to based on the approved site list and

so on.
Laura Andersen, RMR 704-350-7493

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Conferences, I've been approached by a few plaintiff

attorneys who asked whether or not we could help them with

doing that work, and then they kind of backed off and said,

well, maybe it wouldn't be a very good idea given the work --

who generally hires us.

have you been a frequent speaker --

I have.

-- to professionals involved in asbestos litigation?

And speaking of professional conferences and gatherings,

THE COURT:

MR. GUY:

Mr. Guy has something.

Your Honor, maybe this will expedite

things.

an expert in his field.

he did in his report.

15
16

We have no objection to Dr. Bates being qualified as

So maybe this -- we can short-circuit through all

the speaking engagements and everything else.

THE COURT:

MR. CASSADA:

THE COURT:

MR. CASSADA:

Where we differ is on the work that

All right.

We'll let you go --

I'm sorry.

I'll let you proceed how you -I will take Mr. Guy's cue and move a

little bit -- with a little more alacrity.

THE COURT:

I'll give you a carrot.

lunch as soon as you get him qualified.

BY MR. CASSADA:

We'll go to

So you've spoken quite often at a number of conferences?

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1

I have.

And you have been engaged as a claims expert in a number

of bankruptcy cases as well?

I have.

And are those listed on Slide 14?

They are.

And you have been retained to do estimation work outside

of litigation in the asbestos area?

I have.

Particularly the work -- in addition to the type

of work that we've done here, obviously we're retained fairly

frequently in matters having to do with due diligence, which

generally are private because of the nature of the

transactions with regard to those.

there.

So there's no items listed

As I mentioned insurance coverage matters.

But we

also -- I testified in front of the Senate Judiciary Committee

on the FAIR Act and the viability of the FAIR Act.

In that particular case, had found -- was actually the

expert that came in with the highest number that was being

estimated there, primarily because the FAIR Act essentially

wound up -- would pay a lot of individuals -- we did the study

of what the FAIR Act was constructed -- that it would pay a

lot of individuals who would get lung cancer from smoking and

not from asbestos exposure.

And the conditions of the FAIR Act, if you apply them,

Laura Andersen, RMR 704-350-7493

DIRECT - BATES

2733

actually, would blow through what was the proposed funding of

it by several multiples.

We also do the work that's been mentioned here in

financial reporting, and included on this list, of course, is

a company called John Crane, which Mr. Swett made reference to

in a number of matters here.

outside of asbestos work?

Finally, do you have experience in the estimation area

I do.

We have done a lot of work, just investigating

issues associated with tobacco, though have not provided any

testimony in that area.

that.

But we've done a lot of research in

That is where I was an expert in a bankruptcy matter

having to deal with a little thing otherwise called Diacetyl,

a company called Chemtura, another product liability issue

there.

microwave popcorn its butter flavor.

in Judge Bridges' court up there and have dealt with issues

relating to silica as well.

Diacetyl is the chemical which gives popcorn,

I was involved with that

I've listed up here five bullets of cases that I've

worked on and made mention of the vitamins price fixing

matter, which essentially brought together a number of experts

there to build, essentially what would be, at that point, the

first and most sophisticated models for forecasting prices

that would be in a situation but for the price fixing activity

Laura Andersen, RMR 704-350-7493

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1

was gone on by a cartel.

These are a number of different matters -- what's

related -- what's common about them is that each one of them

involved a situation where the particular application had

never been used before.

and econometrics to rather large complex problems with lots of

data associated with them.

models that said, this is what you do.

problem.

They're an application of economics

And there weren't established

Because it's a

It's kind of a problem come about, but that's what I

and my firm specialize in doing, that kind of activity here.

MR. CASSADA:

Thank you, Dr. Bates.

THE WITNESS:

To be expedient, I won't go through

the details of it.

MR. CASSADA:

Your Honor, we tender Dr. Bates as an

expert in economics, econometrics and asbestos-claims

estimation.

MR. INSELBUCH:

Not wanting to stand between a judge

and his lunch, I'll defer my questions to cross-examination

and defer till briefing time, whether or not, whatever his

expertise is, his report and his testimony is supported by

science.

22
23

THE COURT:

All right.

We'll admit him as an expert

in those fields.

Take a break for lunch, come back at, I guess, 2:05.

(Lunch recess at 1:04 p.m.)

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(Court resumes at 2:04 p.m.)

THE COURT:

All right.

BY MR. CASSADA:

turn to the first charge that you were given, and that is

evaluating the relationship between Garlock's liability and

its settlements.

8
9

Okay.

Dr. Bates, now that you're qualified, I want to

Did you form an opinion with respect to the relationship

between Garlock's historical settlements particularly during

the 2000s and its liabilities?

I did.

What is that opinion?

The opinion is that Garlock's settlements are multiples

of its legal liability.

from the principles of law and economics.

what law and economics is?

interaction between law and economics.

economic analysis applied to legal issues.

well-established discipline.

associations which are essentially both article peer-reviewed

by both economists and lawyers, and got some rather famous

ones at that.

States and around the world which engage in that discipline.

Now you mentioned earlier in the day how you had drawn

Yes.

Can you describe

Law and economics is a field that is actually the

It's essentially an
It's a

There are numerous journals and

A number of associations, both in the United

Laura Andersen, RMR 704-350-7493

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2736

And you're referring to the journals and associations

enumerated on Slide 18?

I am, yes.

Has there been specific research and articles published

in the field focusing on the very issue that you're addressing

in your report?

we referenced in my expert report which I listed on the screen

here.

Yes, it's been well studied and I put four articles which

Articles that go back to the time period of, first,

Landes, and then Posner, in the period of early 1970s.

The

Posner article has been cited probably over 1,100 times as the

judge -- famous judge on the Court of Appeals, and essentially

a senior lecturer at the University of Chicago Law School.

And there's also the articles by Priest and Klein

referenced over 2,000 times in articles and books, as well as

a couple of other papers in '85 and '96 which we'll talk about

in more detail.

economists and lawyers who have worked on this area.

who's actually rendered an expert report for the debtors in

this case?

Correct.

What does the literature tell you?

Well, there's several things that I'm going to run

through in terms of his literature.

But these are prominent researchers,

And George Priest, he's the Yale Law School professor

I've read his report.

I mean, first of all, the

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1

first thing to know is that, essentially that there is --

Posner, as he outlined in his article in 1973, in his

"Economic Approach to Legal Procedure and Judicial

Administration" -- that was a fairly extensive article -- but

one section of it is on the relationship between liabilities

to settlements, identifying that they're clearly not the same

thing.

by practicing lawyers for a long time, but writing it down and

they're engaged in this process of formally modeling the

And in fact, there's something that is well understood

process and describing it in some detail.

He lays out in particular that what's important in

determining settlements, is not only the parties' views about

the trial risks and the potential jury awards which are

important for understanding liability, but also the costs can

be avoided by settling, instead of proceeding on to trial.

And particular the larger those costs are, relative to

the potential outcomes of the verdicts, the more important

those issues become.

here as described through the testimony of Rick Magee and John

Turlik.

And that's going to be a very key issue

There's also other issues which is not just the hard

costs that matter, there's also issues that the individual's

attitudes toward the fact that the legal process takes time,

as well.

a value to the time saved by going through settlement instead

So a settlement that occurs now matters.

Laura Andersen, RMR 704-350-7493

So there's

2738

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2

of proceeding through the litigation.

There's also the attitude that each of the party has

towards risk.

A trial outcome is not a certain process in

either party.

It's an uncertain outcome.

recognized that in his report and described about the

likelihood of mediating outcome, the risk of trial when a

plaintiff takes a case to trial.

8
9

There's the size of the award.

Dr. Peterson

You run the risk of

either on one side a very large award which has its own costs

associated with it, or, you know, a -- for the plaintiff, a

very small -- small award.

award.

the award matters a lot.

there's a wide variety of potential outcomes that potential

litigation can have.

So there's just the size of the

It's not just whether you win or not, but the size of
And our study in this reveals that

In 1984 Priest and Klein, I think, wrote some articles on

this.

difference between cases that went to trial versus the cases

that settled.

formal model of the litigation decision.

And in particular they were talking a lot about the

And they developed in their article, fairly

And essentially came out with the following quote, which

I thought was particularly germane in this issue, "according

to our model, the determinants of settlement and litigation

are solely economic, including the expected costs to parties

of favorable or adverse decisions, the information that the

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parties possess about the likelihood of success at trial, and

the direct costs of litigation and settlement.

proposition the model shows that the disputes selected for

litigation as opposed to settlement, will constitute neither a

random nor a representative sample of the set of all

disputes."

From this

That's particularly important for my undertaking here

where I'm attempting to estimate and set out to estimate the

legal liability of Garlock, based on the data that we have,

given that we have information on verdicts, and the history of

verdict.

have.

But it's relative to the total volume of cases we

It's a relatively small volume of cases.

This is -- addresses this on Slide 20 here.

But I've

also made reference at the bottom, and I do on several spaces

throughout this, make reference to where in my report I make

reference, and describe much of what I do here in more detail.

anything about whether settlements can occur even in cases

where no liability exists?

is more recent -- a discussion about why it is that

settlements might occur in cases where the plaintiff himself

doesn't actually have a prospect of having a positive outcome

of going to trial.

Okay.

Turning to Slide 21, does the literature say

Yes, it does.

This is an area where -- on relative terms

There's a lot of discussion within this literature on the

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gain theory side on whether or not it even makes sense to talk

about outcomes where the plaintiff doesn't have the prospect

of a positive outcome, given their cost of taking the case to

trial or not.

The articles -- the authors in these articles showed

that -- particularly the Rosenberg article, as well as the

more formal process of how that might occur in the Bebchuk

article, show that, you know, a plaintiff who has no chance of

winning at trial, can credibly threaten the defendant and

obtain a positive settlement amount.

And there are -- some of

the dynamics in this case I think, which make that a

particularly suitable analysis which I'm going to talk about a

little bit later.

Basically, what they can extract from that process, is a

settlement up to the cost of responding, just solely to avoid

the cost of responding.

discussions from Turlik, as well as from Rick Magee --

Mr. Magee, that these were significant considerations for

Garlock.

And I think you heard, both in

And certainly in my discussions with Paul Grant at

Garrison, as well as the other attorneys who work with us,

that these were significant considerations, given the large

volume of cases they have, the cost that it would take Garlock

simply to respond to the large number of lawsuits they have.

And I think that we'll find that this, for example, drove
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much of the litigation, and the cost of the litigation in the

1990s in the -- much of the nonmalignant claims.

see that it's a very significant role here as well for the

vast majority of claims.

And we'll

Mr. Magee mentioned about the percentage of cases that

were settled for amounts less than $25,000.

These are cases

that basically are -- clearly fall into the category of cases

that we're talking about here, because any part of the

litigation at all is going to cost much more than that as we

will see.

evaluate the relationship between liability and settlements?

came down there, if it's all right with you.

courtroom.

can both see you and them, try to stand out of the way a

little bit here.

Now, what does the literature tell you about how to

Well, I think to describe this, it might work better if I

Sure.

That's permitted.

Thank you.

We've done that in this

I have to see where I can stand here where I

Your Honor, we've seen this before.

This was in

Mr. Magee's slide, as well as in Mr. Cassada's opening.

is part of the equation of what the law and economics

literature tell you about resolution of the determination of

settlements.

This

Particularly on the left-hand side of this is essentially

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the part -- left-hand part of this, these are the components

which essentially -- in figuring out whether or not it wants

to try and settle, versus take a case to trial, is going to

try and handicap the outcome of taking the case to trial.

on the basis of that, they're going to try and figure out what

the compensatory awards are, and what would be their share of

this award.

8
9

And

They will take other considerations as well.

For here we have focused our attention solely on the

compensatory awards part of it.

As well as the likelihood of

success.

And these parts are essentially what the literature

describes as being the expected liability associated with

taking a case to trial.

So we could expect, for example, if there was -- this

compensatory award was perhaps facing the prospect of $100,000

and you had a likelihood of success of 10 percent, then this

value here would be $10,000, is what you would get.

And then here, what we have is, as well, is what the

defendant's avoidable cost.

That is, what is it that I can

save by settling now, instead of proceeding on to the case

either to trial or through further litigation.

Those costs are what I could avoid.

Here those costs

could be things like discovery costs, the actual cost of the

lawyers taking a case to trial, experts and so on.

24
25

As is pointed out by the literature, it clearly makes

sense that the highest amount the defendant would be willing
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to pay, would be in fact no more than the combination of what

it expected to pay from the liability, versus the avoidable

costs, and that would be the highest settlement offer.

Clearly, this is a simplification of some of the costs

because the issues of risk aversion and the issue of what the

downside could be on a particularly bad outcome can matter.

But this is a basic description of that process.

Oops.

That was the wrong thing to hit.

That is only half of the determination of what affects

the settlement.

party bargaining on the settlement.

essentially the bargain between the plaintiff and the

defendant over settling the case and resolving the case

instead of proceeding on to trial.

The other half of the equation is the other

So a settlement is

The defendant -- the plaintiff has his own valuation of

what the compensatory award would be.

what that could be, and to the extent that they have competent

professionals on each side, you would think that they would

have a fairly good idea of common view of what that

potentially would be.

21
22
23

So it has its view on

They also have a view of what the likelihood of success

would be.

All right.

That matters.

But in addition, the structure of settlements in this

particular matter is such that we have a different component

to them.

We also have the fact that for most cases of this

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type, product liability cases, that the lawyers by the

plaintiff are paid through a contingency arrangement where the

plaintiff has to pay the amount that they pay to their

lawyers, not based on the time they spend, but whatever the

outcome is they get a percentage of it.

They also have costs that can be avoided by going to

trial.

fee whether they settle or go to trial, so that's not

avoidable.

Obviously they have to pay their lawyers a contingency

But the costs that could be avoidable are the direct

costs of going to trial.

associated with that.

amount that would be the lowest amount they would take to

settlement.

The time of delay would be

But in the end, they also have an

And to the extent that this amount here is less than this

amount here, you would expect there to be a range over which

they would have to bargain to get a particular outcome.

That's where we bring in, essentially, the gain theoretic part

of this, which is to say, where do you expect to see -- given

this range of possible outcomes, where would you expect to see

a settlement.

And in the simplest example of this, you would expect to

see a settlement accounting for all the kinds of costs that

you have on both sides of the parties, the competent

professionals on both sides, you would expect to see

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essentially an outcome that is about in the middle of the

range.

on this.

of being redundant, but what would happen if the defendant's

highest settlement offer were below the plaintiff's net

acceptable settlement?

actually maybe draw a little diagram on the easel now?

That's what the economic literature predicts for you

Let me ask you a relatively obvious question, at the risk

What would the outcome be?

That would be a case that would go to trial.

I can

Sure.

Just to illustrate the point.

we have it.

likelihood of success -- and I'm going to put two axis here.

I'm just going to put here the defendant's view of the

likelihood of success for the plaintiff.

the same thing here for the plaintiff, likelihood of success.

Do it off to the side so

If you think of the equation where we have the

And I'm going to do

And if they have common agreement on this -- when they're

both the same, you essentially have a 45-degree line.

that's where on this, regardless of which they think the

outcome of success is, as long as they agree on it, then they

would both have the same assessment.

one -- 100 percent.

be 100 percent.

24
25

Because

This would be bounded by

That would be here as well, so that would

Now, with regard to most -- the settlements that you

would see, because the settlements occur, for the most part
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you would expect to see these settlements all occur,

essentially if I take all the various cases we have as dots

around this line, they would be, perhaps not exactly on it,

but they certainly would be close.

numbers with them.

And we would expect to see

What happens if essentially their evaluation -- we have a

combination which is off this mark?

this would be a combination where the defense thinks its

likelihood -- of the plaintiff's likelihood of success is

Well, if it's up in here,

high, but the plaintiff has a low evaluation.

In that case you're simply going to get an outcome where

the plaintiff basically gets a windfall because the defendant

is going to settle even though the plaintiff doesn't think he

has much of a chance to win.

A case down here, is a case now where the plaintiff

thinks he has a higher likelihood of winning than does the

defendant.

between those is enough, this is a case that would go to

trial.

And so long as it's far enough, the difference

So cases that are essentially a disagreement, and that

comes out of the literature that we had from Priest and Klein,

the literature would be such that these are places of terms of

the likelihood of success that you would expect to see when

there is -- of the cases that would go to trial.

definition, in some respects, they are different from cases

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So by

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that settle.

determining settlements.

avoidable costs in asbestos litigation the same?

also have differences between them.

to it in the other -- on the prior slide.

8
9

So you talked about the importance of avoidable costs in

Are plaintiffs' and defendants'

Well, there are some elements of them the same, but they
I think I made references

Essentially -- we have, essentially, on the defendant's

side, they pay their lawyers by the hour.

They can use

various combinations of ways to do that, but attempts to try

and put some arrangement on that is somewhat contingent, but

it's really hard to do.

They pay their attorneys by the hour, and when they

settle they save all those future costs.

costs through summary judgment.

through trial, at trial.

have costs to obtain co-defendant contribution.

costs associated -- if they're making an appeal, of money for

bond, posting bond should they win to try to take cases

through appeal.

times in trials for Garlock.

then they have other trial expenses, incidental expenses.

They have those

They have the costs that go

They have costs for appeals.

They

They have

That's been an important element a couple

They have costs for experts, and

These last two are costs that they both share, both the

plaintiffs and the defendants share.

They both have experts

that they have to pay for out of pockets and they have other
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trial expenses.

The plaintiffs, on the other hand, don't pay for the

lawyers directly out of -- by the hour.

They pay the lawyers

whether they settled, and -- or whether they go to trial, the

lawyers get a percentage of whatever the take is.

They do, however, have perhaps -- I've heard it mentioned

a number of times, they have particular costs, emotional costs

of attending the trial which comes into play here.

the experience, in particular, an emotional situation, is

Reliving

something that could be taken and should be taken into

consideration.

And of course the time value here, which in their case

the time value is the delay in getting paid.

For the costs on

the other side for the plaintiff -- for the defendant, that's

not a cost, because they actually keep the money that they

would otherwise lose in the settlement, but they do have to

pay the other costs.

Essentially, the contingency fee arrangement between

plaintiffs and their representatives, plaintiffs cannot avoid

the lawyer costs by settling, and that's a key element of this

litigation.

defendants and plaintiffs in a specific case?

actual bills in a case that was provided to me by Garlock.

Can you describe an example of disparity in the cost of

Yes, I mean, this is an example I've taken from some

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This is a case that has been mentioned in court, I won't

mention the name of it, just simply because of the privacy

concerns issues.

91.

costs involved with this.

It's talked to in my report on pages 83 to

This case I got the detailed daily bills for most of the

The blue line -- what I've done with those bills, I've

constructed -- in fact, gone to the end, figured out what the

total bills are, then going back through time figured out how

much they could have saved if they had settled on that date.

So this is a trial that's case had essentially -- was

scheduled for trial around this period, and proceeded to trial

on the 17th of April, and then concluded several weeks later

here into May.

So what we're measuring on that side here, is eventual

bills for the case.

earlier in the hearing.

excess of $500,000.

from the blue line is how much the defendant would have saved

by settling on that date instead of going ahead and proceeding

to trial.

This case settled here, as was discussed

This case had bills that were in

So on each of these dates, what we see

Now, I don't actually have the bills for the plaintiffs.

That's not something that was given to me.

But what I've done

is, to create a constructive proforma is, I've abstracted from

this the part of the bills that are not associated with the

lawyers' time.

So the expert's time and the other bills and

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treated them as being the same on both sides.

Because as we've seen through bringing the experts here,

I don't think there's any particular reason to believe that

the experts on one side, that kind of cost on one side are

different from the kind of costs on the other side.

put that into this equation here.

So I've

What you can see then through here at any particular

point, I've also listed trial detail, is the amount that the

plaintiff -- the defendant could save by settling it in time.

So we have here, essentially, about $50,000 in

plaintiff's avoidable costs.

think evidence that basically indicates that these are a

pretty good indication of what the plaintiff's costs actually

are.

By the way, I have other -- I

Some of the lawyers for their own marketing concern put

them on their web sites telling about what the costs were.

They give the outcomes of the trials.

things they give you.

That's one of the

So we have here about $50,000 in costs.

We have up there

nearly -- somewhere between 550 and even before the trial

starts, about $430,000.

expense that can be divided up between the lawyers, the

plaintiff and the defendant, rather than taking the case to

trial.

nobody settles is going to get consumed by this.

That's about $600,000 to $500,000 in

So that starts off with a big pile of money, which if

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are different for plaintiffs and defendants in asbestos

litigation?

significant asymmetry between the costs.

be avoided in this case are much larger for the defendant than

they are for the plaintiff.

8
9

Is the contingency fee the only reason avoidable costs

No, it isn't.

I think as that example showed, there's a

The costs that can

Then there are other elements of this case though -these cases which are structurally such that the avoidable

costs are different between the defendant and the plaintiff.

I've got two examples of this and how this works.

them is the fact that typical mesothelioma claim as we know

from talking from the data that we've collected in this case,

as well as our information we have more generally, is over 50

defendants on the complaint.

only include, with one or two for the plaintiff, but the

defense attorneys will have multiple defendants there.

One of

Plaintiff depositions typically

If you look through the complaint and look through the

depositions, you'll see the appearances by the attorneys for

the defense side they can go on for pages, they have 10, 20,

30 of them at times goes on for pages, depending on whether

they share attorneys.

Plaintiff only has one or two.

There are multiples of costs that will basically be

replicated by each defendant who has to go through his own

expense, and has to be ready to litigate the case on their

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own.

attorneys.

their own attorneys involved with it.

a multiplication of the costs on the side of -- the

defendant's side which is not there for the plaintiffs.

So they cannot depend and don't depend on the other

They also have conflicting issues, so they have
So there is essentially

In fact, what that means though is that for the plaintiff

if he has -- if he's litigating against multiple defendants,

the plaintiff can only avoid his future costs of any

significance, if the last defendant is leaving the case.

there's other defendants in the case, even if the Defendant 17

settles with the plaintiff, there's still the rest of the

defendants that have to go -- the plaintiff has to pursue.

they still have their basic litigation costs, even though it's

settled with that particular defendant.

There are also particular docket management rules that

basically can make the cost -- I think even exaggerate the

cost asymmetries, particularly when multiple cases are

scheduled for trial ad seriatim.

I think we had an example of this yesterday when

Mr. Finch was up talking about -- he wanted to know who the

expert witnesses that Garlock would call on defense were.

he wanted to know whether or not it would be only two of them,

in which case he didn't have to prepare for eight -- create

cross-examinations.

And

Whereas, you know, that kind of example here about saving

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time and saving costs works even more in the case of -- cases,

for example, of a docket like in New York where they have a

trial docket and they will place 10, 20 cases ad seriatim.

Though those cases will proceed to trial, the defendant has to

prepare for each one of them.

one will come up.

they come to trial.

8
9

He doesn't know which day which

Alls he knows is perhaps the order in which

So he will go in the first day and find that in fact the

plaintiff has dropped the first two and he has to start the

third one.

out that he's dropped the next three or four and he has to do

the fifth one, and it follows right on the heels of the first

one.

greater number of cases than he would, if the cases proceeded,

you know, in a more structured, scheduled manner.

And then they do the third one, and then he finds

So he's put in a position of having to prepare for a

So, in particular, the defendant has to pay in this case

to prepare for all trials, all scheduled cases in the trial

group, because they can begin with little notice.

plaintiff firm knows which ones they will be using.

they're going to let defendants out, they can target the

cases, which is what they do.

analysis that you would undertake to determine the expected

outcome of a Garlock case with potential for trial risk?

Turning to Slide 26.

But the
If

Can you describe an example of the

Well, this is a graphic which illustrates the model that

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I just described.

We've had the top -- these are -- I've got

two of these that I prepared.

are cases which look like the kind of cases for which Garlock

has trial risk.

I'll talk about a little bit later, about 5 percent of the

cases that Garlock paid in the 2000s.

So this is an example here.

One of these is for cases which

Those represent, as my analysis will show and

So the type line here, the

blue part of this illustrates the part of the chart that we

showed before with the description of the model with the words

10
11

on it.
So the top line is the one that Mr. Magee showed you,

which in this particular case we have the example of a case

where there's a potential trial risk of $100,000.

what's illustrated here on this part.

measures the dollar term.

of the model, we have outcome $100,000.

So that's

So the axis here

So we have the far left-hand part

So, for example, if we had a $2 million potential outcome

and a 5 percent chance of getting there, we have $100,000

potential expected liability.

But the cost of taking a case to trial, looks like -- the

costs looked like, perhaps at the eve of the trial, of a case

that I showed you before, which has the costs of potentially

$430,000.

24
25

So that defendant here, Garlock in this particular kind

of situation, is essentially -- faces the prospect of -- by
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its evaluation, it has handicapped this situation as being

$100,000 expected liability.

$430,000.

of about $500,000 -- $530,000 it anticipates to take the case

to trial.

Trial costs potential of

So it basically sees an expectation of an expense

The bottom side of the chart here is the range for the

plaintiff.

plaintiff -- to the settlement -- the settlement to the

plaintiff.

The plaintiff, what would be an acceptable

Well, clearly they wouldn't mind having any amount out of

here.

they have a common expectation of getting $100,000 potential

outcome.

the prospect of getting, you know, $100,000, plus it has

$50,000 avoidable costs associated with this.

But what's the lowest amount they would pay?

Well, if

Well, that individual plaintiff basically looks at

So it has -- since it's basically going to get, out of

this, if it has a 35 percent contingency rate, it's basically

going to get this amount, which is $100,000 in outcome, it's

going to have to pay $35,000 to the lawyer.

have $65,000.

or between emotional costs or some combination of them, it

really only faces a prospect here of about -- taking the case

to trial of about $15,000 as an outcome for this kind of case.

The model, however, would tell you that there's the range

It's going to

If it cost $50,000, either between hard costs

here between what is the plaintiff's minimum acceptable

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amount, which is around $15,000, up to the defendant's maximum

amount, which is about -- over here, which is somewhere in the

neighborhood of $530,000.

So this is the settlement range.

This is what they are

bargaining over.

would call the core.

And where in that range will they come out.

8
9

In the literature that's something they

So we're bargaining over this amount.

Well accounting for the contingency rate that the

plaintiff has to pay if he gets a settlement, you would get an

expected settlement out of this which is about $330,000.

not literally in the middle of this range, because you really

have to account for the middle of the range between what the

plaintiff would gain, versus what the defendant would have to

pay, and split the difference between them.

It's

When you get that amount here, it's about a $200,000 gain

to each to settling at $330,000, instead of taking the case.

It's a $200,000 gain to each, to settling the case.

at $330,000 instead of proceeding to trial.

analysis of the expected settlement outcome of a Garlock case

with no trial risk --

Yes.

-- one which requires some expense to obtain a dismissal?

Correct.

even if -- the example where I gave of the trial case.

And it's

Turning to Slide 27, can you describe an example of the

So as we saw in the case that we had there,

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Suppose that the plaintiff had no prospect of winning that

case but it cost the defendant $65,000 on average to take the

case through to trial to prepare.

In that case, even though the plaintiff has no chance of

success at trial, if it can force Garlock through essentially,

just if you will, delay, and if Garlock wants to get out of

the case, and it has to go through the discovery to prepare

for the case, this might be the case.

of the case is not simply dependent on -- it doesn't just

happen.

Garlock prepares, as well.

After all, the outcome

The outcome of the case is dependent on how much

So the plaintiff has a chance to observe whether or not

Garlock actually does much to prepare through the litigation

process, the competency of its attorneys and so on.

So Garlock has to prepare, and if it faces the prospect

on average of about $65,000 to litigate to the point where it

is clear to both parties, and clear to some other outside

agent, such as the judge, that they're going to get out of the

case so it doesn't have to spend anymore beyond that, then in

that circumstance, the plaintiff obviously be willing to take

anything to settle that case, but the expected bargain out of

this is again, taking account of the contingency rate here,

you expect it to be somewhere in the neighborhood of splitting

this amount, if you count contingency rate as an expected

outcome of about $37,000 as being the expected outcome.

Laura Andersen, RMR 704-350-7493

This

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is what is typical for 95 percent of cases which Garlock

settled in the 2000s.

Those costs were a lot less in the 1990s, as we saw from

John Turlik, from his description of what's gone on here, as

well as Mr. Magee.

the case against the insulation contracting companies as

defendants in the tort case, identifying them and putting on

the case for them.

In the 1990s the plaintiff was putting on

Generally Garlock would face the cost prospect of simply

taking the case through deposition, doing an initial workup to

find out that it really faced little prospect of taking the

case farther and beyond in the litigation, and would be

sufficient to get it out of the case in many cases.

basis of that, it really faced the prospect of somewhere

around 5-, $6,000 in cases -- for most of the cases that it

faced.

outcome somewhere in the neighborhood of about 3,000, to

$3,500.

And as a

And on the basis of that, you would expect to see an

Going through the bankruptcy wave, however, the

plaintiffs stopped -- as we heard from testimony here --

plaintiffs stopped educating or espousing the insulation

companies as the source of their exposure.

They, essentially, in many cases, would continue to

describe them in the depositions.

But in many cases Garlock

had to do the work instead, as described by the plaintiffs as

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what is the obligation of Garlock to do in the cases when the

plaintiff no longer would do that.

And it's the cost of doing that work that matters.

That's the cost that basically drives the cost to Garlock up

of defending these cases and taking to the point where it has

established enough of the discovery record, and enough

litigation that it can actually face the prospect of

establishing that it has no liability in the vast majority of

the cases that it faced.

That increase in cost is approximately from a few

thousand dollars, basically almost $60,000 on average increase

in cost, which had a tendency -- I've been through the model

as we would expect to see the average settlement rise from

somewhere in the neighborhood of 3-, to $4,000 to nearly

$40,000 to pay on these kinds of cases.

Garlock's settlements increased from the 1990s to the 2000s?

essentially shows the changes that took place between the

1990 -- this is my analysis of where they were.

the pointer?

what we have.

Could you describe your evaluation of the reasons

Well, I can.

First here, this is a chart which

Did you have

I'll use that instead of standing up in front of

So this is a table of numbers.

So let me take you

through it a little bit.

This is the application of the model

to the analysis of the settlement data of Garlock.

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I covered

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this in my rebuttal report on pages 67 to 73.

We're on Slide 30 now.?

Yes, this is Slide 30.

Essentially I divided the cases into two categories.

It's a slightly different division than Mr. Magee used in his

analysis, and it's a slightly different analysis that I did in

my affirmative report in that I segmented the cases slightly

different.

done in between doing the rebuttal report and doing the

And that's the result of some of the work I've

analysis of settlement data which revealed that this division

was a useful one for this purpose.

Put the top part here refers to the 95 percent of cases

for which there is no trial risk to Garlock.

you the analysis by which I determined that.

And I'll show

That represents in both cases, like I said, the vast

majority of cases.

6,000 of those cases.

Garlock saved on average about $5,600.

no trial risk, not detectable.

because statistically we can't actually measure it at zero.

It measures at zero, but it could be marginally above that.

In the pre-2000 period, there were nearly

They settled on average $3,300.
And it had little to

I don't want to say it's zero,

The tests I've shown that it does not -- the analysis

I've shown that it does not have to be much above zero.

fact, it could be .03 percent, unable to detect it through

this amount of data.

But, so it really would have to be very

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small indeed for us to not be able to detect it.

For those cases, the cost of defending -- essentially the

average settlement went from $3,300 up to $37,000.

again, vast majority of these cases -- these are, by the way,

are only the paid cases of Mr. Magee and his analysis which

included zeros in it.

paid cases.

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9

We had,

For this analysis I only have just the

That is equates to -- as I showed you before -- an

increase from 5,600, to $65,000.

What this part of this is, these are the 5 percent of

cases for which they are detected actual trial risk to Garlock

through the settlement data.

dozen cases per year.

attention to.

defense.

Magee, Mr. Glaspy, Paul Grant.

dealing with these cases.

That represents two to three

These are the cases that Garlock paid

That's what the focus of the attorneys on the

It's what preoccupied the time of Mr. Turlik, Mr.

Their time was dominated by

And in particular, going through the bankruptcy wave,

several things occurred to them.

costs that they faced went from $63,000 on average prior to

the period of 2000, up to an estimated average of over

$430,000.

23
24
25

First of all, their trial

Now this is the amount that they saved, relative to the

amount that the plaintiff saved.
So this is not absolutely a number that -- and I can
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clarify that, but discussed in my report -- it's actually the

amount over and above what the plaintiff saved in cost by

settling instead of defending.

However, it wasn't just an increase in settlement -- in

defense that drove the increase of the average settlement

which went from $36,000 to $335,000 for this case.

actually was also a mixture of two other factors.

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9

Part of it was an increase in trial risk.

So for these

cases I detect a trial risk that is in the neighborhood of

about 7 percent.

there, the liability likelihood from the plaintiff was about

7 percent for this 5 percent of the cases.

So in that settlement model that I had over

And the aggregate expenditures, the net potential

award -- the total potential award, not net -- total potential

award was $2.1 million.

that's the total amount of the verdict potential on the case.

Garlock would share that amount if it went to trial if there

were other cases and there would be offsets against that if

there were settling parties, as there usually were.

Now that's not Garlock's share,

Going from the 2000s to the period -- from the 1990s to

the 2000s, Mr. Magee described for you the risks they faced,

and the settlement data reveals that as well.

from 7 percent on the trial risk cases, to approximately

17 percent.

and a half fold increase in the liability likelihood going

They increased

So there was nearly two and a half percent -- two

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from the 2000s -- from the 1990s to the 2000s.

At the same time there had been an increase in the

potential verdict amounts.

to understand why that occurred.

hypotheses, various publications on why that amount increased.

But it definitely took a distinct step-up from the 1990s to

the 2000s.

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9

That's been an interesting study

And there's been some

My hypothesis being in one hand, that could simply be the

result of essentially what amounts to Daubert revolution

across the country.

and they were better presented.

which cases actually went to trial.

ramifications for this litigation.

That cases had to be more better prepared

It could be a selection of
Both of those have had

The scope of understanding why that step-up occurred, but

it was beyond the scope of what we did here.

accepted it for the purposes of our analysis that the step up

did occur as we measured.

And we simply

So those are the changes that we have -- I have figured

out by using the settlement data and the model between

relationship between liability and settlement.

for a little while and I want it back.

Let me ask a question.

I'll let you keep control of that

But how do you know -- I mean what's the analysis that

you undertook to determine the variables that you described on

Slide 30?
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elements of the settlement model -- of the model that helps us

understand and figure out which part is which.

Well, there's a distinctive pattern on part of the

And so remember, this was the model here, again, which we

developed for use of this purpose, and over here we have this

amount here, which is the compensatory share amount.

So what we can figure out what that model is.

We're

trying to figure out how much of it is represented by the

parts here in the blue boxes, versus how much of it is

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11

represented by what's in these boxes, the avoidable costs.

Well, the point about this part over here is that we know

that these amounts here, particularly these amounts here, are

distinctly affected by the age of the claimant.

affected by the age of the plaintiff.

they face and they avoid are not affected by the age of the

plaintiff.

Damages are

Whereas the costs that

So what I have here is show you a graph of how that

pattern is.

compensatory damages would be for current claimants.

This is our estimate of what the potential

So to construct this, we use -- and I'll talk about this

a little bit more later.

But we used observations on verdict

amounts related to the various claimant characteristics, and

particularly the age.

this data quite strongly, is that these verdict amounts, the

potential verdict amounts as Mr. Magee mentioned, varies

And a pattern that comes through in

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strongly with age.

There's a lot of variation between them.

But the pattern related to age is a very strong measurable

factor.

Well, the costs that are avoided, don't vary by age.

How

much it costs to bring a case to trial and prosecute it, don't

actually vary by the age of claimant.

So knowing how much the settlements vary by age, as

distinct from how much they don't, basically knowing how much

the verdicts move by age, versus the fact that the defense

costs don't, allows me to tease out through the econometric

analysis, how much of it is attributable to the portion on the

left, which is due to the compensatory expected damage award,

versus how much of it is due to the defense costs.

You're now on Slide 33?

Yes.

the way I segmented the data.

where you get the 95 percent, not 5 percent split, occurs at

about $200,000.

Slide 33.

So I told you about the two segments of

In the 2000s that segmentation

Now there's described in my report the analysis of how I

came up with that $200,000, so I'm going to show you the

result of that here.

But how I came up with that $200,000 award is a matter of

several different steps which I tested on some hypotheses.

used statistical measures which gave me a reliable measure of

the breakpoint between the values for which I saw phenomenon

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of this kind, and the ones where I don't.

What I see here though is, here's a chart which shows you

what the average settlement is by age for claimants who settle

their claims for less than $200,000.

average for the claimants who are less than 56 years of age.

And up here are the ones greater than 86.

me the average amounts.

8
9

Down here we have the

And this just gives

Now the actual data on this looks a lot like the other
chart we had in terms of it being a lot of individual points.

After all, there's about 6,000 of these points here.

summarized it by these blue bars with just an average in each

one of those age pins that I have here across this.

graph there it says, "age coefficient and confidence

interval".

Right.

Can you describe what that is?

Right.

I estimated the regression relationship, again, controlling

for the other factors in the data, like what state they

belonged to, and whether or not the individual was alive or

dead at the time the case was filed.

So I've

Before you go to the next slide, in the middle of the

So what I did with regard to all of that data is,

I estimated what the impact of age would be on settlement

amount through the regression analysis.

It came back and said

that the pattern of what it found numerically was measured

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at .04 percent.

Remember what I said -- I don't know if I said it, but

for the verdict amount, that amount declined at a rate of

4.5 percent per year of increase in age.

So this picture here declines, this curve here declines

at a rate of about 4.5 percent per year.

You're referring to Slide 32?

Slide 32, correct.

age coefficient, if I estimate the same regression, I get the

Whereas on Slide 33, when I fit the

red line.

In fact, that number is 0.4 percent, is through this measure

here, this confidence interval tells you that it's

statistically no different than zero.

of this.

extreme basis of minus .3 percent, as high as .4 percent, but

it's centered on a number that is vanishingly close to zero.

So what it's telling me is, age has virtually no impact

Which to your eye is as flat as it can possibly be.

Zero is in the middle

It says it could be potentially a small -- an

on the settlement values below this amount.

What that tells me through the model, is that these

claims are settled without concern for the left-hand box of

expected liability.

avoidable costs.

impact of the average compensatory amount, and the fact that

the impact of age would have on that.

They're settled for the purpose of

Which -- because otherwise you would see the

Did you also look at settlements greater than 200,000?

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done the same thing here for 5 percent of claims greater than

$200,000 in the 2000s.

amounts that were equal to 200,000.

that are above $200,000.

Yes, so that's the other part of the analysis.

So I've

Prior chart, Chart 33 actually had

This is for the amounts

And I've put the flat line on here which is just to show

you that you can clearly, even to your eye, you can see that

there's a distinctly upward pattern on this.

So clearly the idea -- it's obvious here that it must be

some impact on this data coming through the impact of age on

the settlement amounts, and the mechanism which that occurs is

through the expected compensatory damage amounts.

fact, ask the question of, would this be all through the

verdict amounts?

If I, in

Well, what I put on here is a yellow line which has this

curve on -- has exactly the same slope, with the same decrease

as the verdict, that is four and a half percent per year.

So this would be the settlement pattern you would expect

to see if concerns for liability were the only concerns.

as I said here, all liability, no cost.

So,

If cost paid no consideration or cost was a trivial

amount of the considerations for settling these cases, you

would expect to see the pattern for these cases coming down at

a rate that was similar to what we have from the verdict

amounts, which we do not see.

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Instead, what we see is as shown on this graph, is a

curve -- and by the way, this black line is a curve.

combination of what would look like in this blue one there.

But this is the result of a particular regression in forms

called Longman (phonetic) area of regression, of the

settlement data for the amounts above $200,000, controlling

for the jurisdiction as well as the life status of the

individual.

It is a

It gives us here as we see -- as reference to the

coefficient.

It shows that the data declines -- the

settlement data, the pattern of the data reveals a decline in

settlement average of slightly less than 1 percent per year,

for each age of increase.

confidence interval that we believe that is statistically

different from zero random chance, doesn't play very much of a

role.

And that we know from this

That particular line comes about, which matches with this

data, when I have -- within that data -- within the model that

I created with all the settlement data that I have, about a

17 percent likelihood of success for the plaintiffs in this

5 percent of cases, and net avoidable costs between the

plaintiffs and the defendants of about $430,000.

So it gives me the mixture, the econometrics gives me the

mixture between how much of it is due to the expected

liability amount, versus how much of it is attributable to the

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avoided costs.

between the change that took place.

And that's how I figured out the relationship

And the test that we did was, we literally took this a

step farther.

We took the settlement amounts that we had from

the 1990s, we essentially modeled the increase in the verdict

amounts as what I showed you on the chart, increase in this

liability percentage is an increase in the cost, run them

through the model and predicted, and we get the pattern that

looks -- you cannot distinguish the line that I get from that

from the line I get from the regression.

the litigation experience that we heard Mr. Magee and Mr.

Turlik describe yesterday and last week?

Very much so.

Okay.

you were given, that's to estimate Garlock's asbestos

liability.

Thank you.

It lays dead on top.

Now, were your conclusions consistent with

I would like to turn now to the second task that

Did you in fact estimate Garlock's liability for pending

and future claims?

I did.

Now, would you explain the assumptions you were given and

undertaken in your estimation work?

verbatim the assumptions that were given to me by Mr. Cassada

and the others at Robinson, Bradshaw.

So we've written them here on this slide.

This is

They gave me -- under

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the assumption they were giving me, they said estimate

Garlock's asbestos liabilities as -- defined as Garlock's

share of jury awards taken to final judgment for current

Garlock mesothelioma claimants and individuals diagnosed with

mesothelioma after the petition date, assuming -- and then we

had three assumptions here on Slide 38.

The first one was to assume that all individuals who

allege direct or indirect contact with Garlock's

asbestos-containing products proceed to trial and final

10
11

judgment.
That is, act as if you are handicapping each one of these

cases as if they went to trial in a manner that would be

similar to what the lawyers would do in estimating the risk of

taking the case to trial.

In addition, he asked me to assume that the courts do not

exclude the plaintiffs' or defendants' causation evidence

under the Federal Rules of Evidence associated with --

generally called Daubert, or other similar rules of evidence

governing the admissibility of expert testimony.

So if the defendants in many of these cases challenged

the plaintiff's evidence on these cases.

And so we've assumed

for purposes of this analysis that those rules are not

excluded.

the plaintiffs win are in fact cases where this didn't occur.

And finally the courts and juries have access to all the

Because in fact the cases that go to trial where

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information that the individuals or their counsels have or can

reasonably obtain regarding the individual's asbestos

exposure.

So this isn't saying they know everything there is to

know about their exposure, but all the evidence that there is

about what their exposure is.

known by all the parties, both from the defense side as well

as the plaintiffs, are under consideration by the parties who

are adjudicating the liability.

assumptions?

proceed to trial, as far as I'm aware, all the cases that

proceed to trial -- in fact when I asked the attorneys who

defended the cases for Garlock, are they ever aware of a case

Garlock went to trial in which the plaintiff did not allege

exposure, either direct or indirect contact?

looked at me funny.

That's the basis for the trial.

they were exposed to the product.

trials in which Garlock's exposure was -- exposure to

Garlock's products was relevant.

Okay.

What is known or reasonably

So how would you describe the first two

Would those be assumptions against interest?

Well, I mean, I think that, you know, the cases which

They kind of

What do you mean, of course they had to.

They have to be saying that
These are product liability

The second one -- well certainly I don't think -- it

certainly would be against interest from the standpoint of

Garlock and the debtor here.

If that rule was to be applied

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and applied to all these cases then the liability would be

zero, so.

from our adversaries that assumption three is somehow assuming

the perfect world?

way -- particularly in the way we're going to implement it.

It's what do individuals actually know, or the counsels

actually know about these cases.

And we've heard criticism lobbed -- lobbied -- or lobbed

No, it's not a perfect world.

Essentially here, in the

And particular, it's derived

from the data that is provided as discovery in this case about

what individuals know about -- typically know about the

products in which they were exposed, and the names of those

companies or the brands.

liability for the pending and future claims?

I did.

What is it?

In total, I reached the opinion that the liability --

legal liability of Garlock's as defined above, was -- for

pending claims is less than $25 million.

Okay.

Did you reach an opinion regarding Garlock's

That the future claims valued at two and a half percent

inflation rate from now until the last claim, would be less

than $160,000.

is less than $185 million.

real rate, which gives you a discount rate of 5.57 percent,

That the total amount of those taken together

And discounting at a 3 percent

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given the two and a half percent inflation rate, which would

be 3 percentage -- 3 percent above that when compounded, gives

you 125 -- less than $125 million.

And I believe that in fact the actual amount is

significantly less than $125 million, though we can't

precisely estimate how much.

less than a number?

So why do you render your estimation opinion in terms of

Well, as I just said, it's because I believe, based on

the way we did the calculation here, based on the trial

amounts and trial results we have, that the actual liability

likelihood is less than what you would get by applying the

trial amounts, and the trial likelihood outcomes to the

results as you saw from the analysis I did of the settlement

data which was not used as the basis of the estimates in the

original case.

2.5 percent inflation and 5.575 discount rate?

the inflation rate and what the discount rate is, as though I

have an understanding of these things as an economist and

have, you know, been -- familiarity with the kinds of

economics that underlie them.

of study, though I do understand the relationship between them

and what it needs to be.

Okay.

And would you explain how you came to choose the

These are amounts -- these issues having to do with what

That's not my particular field

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For my purposes, giving the benchmarks I used essentially

what CBO used for its long-term estimates of inflation and

discounting.

estimation before?

have individuals have asked us and gives us different interest

rates to use in different contexts.

business context to transactions context, a weighted average

Are those rates that have been commonly used in

They are.

And the various estimates we do, we

For example, in some

cost of capital is something that's asked to use.

particular situation associated with trusts might have a

different set of numbers, a different set of inflation rate

they use based on return of assets they would have.

depends somewhat on the purpose of what the numbers are being

used for, which ones you would use in this context here.

16
17
18

So these particular are liability estimates.

They're not

estimates associated with expenditures.

So as an expenditure estimate, you would expect that an

expenditure estimate you probably would have probably a higher

discount rate that's more something akin to what the capital

costs would be to the party who is doing the expenses.

This is an amount that's a liability estimate.

It's not

an expenditure estimate.

And the more appropriate amount is

more like the -- relatively the long run view of the relative

value taking into account expected growth and so on, which

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would be somewhere in the neighborhood of about a 3 percent

real rate.

estimating the liability, I would like you to focus for a

moment on the estimation work that you did for EnPro's

financial statements prior to the bankruptcy case.

7
8

Before we discuss the bases for your opinions on

And we've talked some already about the relationship

between settlements and liability.

Can you explain the difference between that work, the

financial statement work and the estimate you prepared for

Garlock in this case?

adjustment to the basic model that we described on this Slide

40 here.

well, this part of it is not described in my report, so it's

really talking more about the model in general.

think reference to the bottom actually applies in this

context.

Yes, I mean, I put this here, I've done a little bit of

This is referred -- parts of this is described --

So I don't

So you think about this as being two distinctly different

parts of the model that we laid out here, relating settlement

amounts to expected liability.

In particular, when we were doing financial reporting, we

are concerned about Garlock's settlements, and in some context

in other financial reportings, not just their settlements, but

also the explicit defense costs.

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But in the case of what we did here, we're interested in

these settlements plus the -- and in some context for

financial reporting, you would be concerned about how it runs

through the insurance and the recoveries for the insurance

which we didn't do in this context.

So we're estimated -- here we're interested in this part,

which includes the amounts that Garlock would pay, not only to

cover its liability, but the amounts that it would pay to

avoid having to pay larger amounts for -- associated with its

costs.

So based on the settlement strategy that Garlock pursued,

it defines, given an expected liability which my understanding

from the attorneys here at Robinson, Bradshaw was the allowed

amount claims under the Bankruptcy Code which is the

liability.

This amount here, which is the settlement amount includes

and is impacted by the defendant's -- plaintiff's avoidable

costs and the net impact of those on the settlement amounts

themselves.

So we were focused over here.

This is the data we have.

Whereas in this case we've been focused on this amount here.

These are two distinctly different amounts.

relationship to each other that comes through the relationship

between costs, which in this particular case is one such the

settlements -- given the pattern of the way the costs work

They have a

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here, the settlements are multiples of what the actual amount

is from the liability standpoint as we've measured it.

reporting work and the estimation you've done in this case,

you are estimating two different things?

common things.

Okay.

So the bottom line is, that in doing financial

Two very -- well, two distinctly different but related

Now let's turn to your estimation work in this case.

Would you describe what you are measuring in this case?

I believe you just did that.

is, we've proceeded through the data that we've accumulated in

this case, as well as other data that we have, to estimate

each of these components to come up with the estimated

liability.

components of your estimation model?

that have to do with the schematic of the model, just the

parts -- focus on the compensatory award and the plaintiff's

likelihood of success.

Well, we're focused on this amount.

So what we've done

So we're on Slide 41 now, and does this describe the

It does.

The schematic now, we brought out the parts

So I'll address each of those in turn.

Particularly, the compensatory awards are actually made

up of the economic damages in compensatory awards, which are a

combination of -- excuse me, the compensatory award which are

made up of the economic damages, the noneconomic damages,

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minus the co-defendant's shares, minus trust shares and

offsets.

So we have these pieces that we have to address.

In addressing that, we need to know what the total --

what the economic damages are.

the noneconomic damages are, which are the part of this which

is perhaps the most nebulous.

the liability.

8
9

How we get a handle on what

The number of parties sharing

Then within that, we need to account for the way in which

the state laws in various jurisdictions would apportion that

liability amongst responsible parties.

Particularly what

matters in this context here is the way they would treat trust

shares as offsets coming out of trusts as distinguished from

tort co-defendants.

depending on what jurisdiction you would be in.

account of that.

Now, go ahead -- I'm sorry.

I was going to say, I was just going to run down the list

here, which is, we have the issue of the other party's

offsets.

get a handle on what the liability likelihood is.

has seen some estimates in Mr. Magee's slides already about

the relative liability likelihood as we saw from the trial

outcomes.

the settlement history that we just talked about already, and

then we're going to identify the pending and future claims,

Those get treated in different ways,

We take

We're going to talk about, as well, estimate how we

The judge

We will use that history, as well as test it with

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and how we do that so we can assign valuation of those.

So it's a model that's going to build from the ground up.

It's going to estimate the components of these on --

essentially, what this -- this is similar to what we would

call a microsimulation model as I described -- what we

described before.

individual components for the purpose of being able to know

how to appropriately weight the averages that we would get and

aggregate up to the total.

We're going to do the valuation on the

That's how we're going to get the

most reliable estimate of the total amount.

gathering information in this case.

Dr. Gallardo-Garcia this morning about how that data was

extracted and used in conjunction with the Garlock database to

build the analytical database.

Now we spent several years undertaking discovery and

We heard from

Did you use the data that was collected in this case, the

information in discovery, has that been used in rendering your

estimation?

data.

we rely on as well, that we can talk about in more detail.

Very much.

It's the main source of what we used for this

In addition, there are some external data sources that

Okay.

So let's look at the components of the model.

First, can you describe how you estimated potential

compensatory damages?

All right.

So this is on Slide 42.

It's covered then in

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my report on pages 67 to 75.

So what we're starting with on each one of these cases

is, going to start with the potential compensatory damages.

All right, now, what we have for that -- I think we'll

run through the details of that in a minute.

we found that the total awards typically ran from two and a

half to -- in the low value states, and I'll tell you -- by

that I mean, states -- we've looked at and examined states.

We found that there were distinctly different patterns of the

willingness in various jurisdictions for juries to award large

noneconomic damage awards.

multiples of what would be the economic damages.

But in results

They're generally done in terms of

So we found it useful to divide the states up into three

categories based on the potential for large noneconomic

damages.

mid-value and high-value states.

things like California and New York.

number of the states throughout the union as well.

So we lowered them.

We refer to them as low-value,

High-value states being
Low-value states being a

The actual value amounts as you saw from the diagram that

I showed you with the scatter plot of all the compensatory

amounts, covers a much wider range than what I have here.

averages between the categories of the low-value and

high-value states, range from an average in the low-value

states of two and a half million, to an average in the

high-value states of four and a half million dollars.

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These

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amounts all vary considerably by the age of the claimants as

we saw.

I also have data on that that comes out of -- from some

verdict amounts.

have a model of economic damages that was created by an

economist on my staff, Dr. Jeffrey Brown, who essentially

built an economic -- a computer model that does -- implements

an economic model that is conventionally used in wrongful

death cases.

But the way I built to those numbers was, I

So it -- essentially there's lots of expert opinions by

economists in the area of wrongful death cases, and there's a

standard methodology that is employed.

in various states of what things they can take into account,

depending on what various states allow for medical -- for

compensatory damages and economic damages.

They have differences

But primarily they include lost wages, medical and

funeral costs, benefits, value of hospital services, lost

social security.

associated with the death of an individual prior to when they

would have otherwise have died.

So it's literally the economic parts

So it's a combination of both knowing about them, their

history.

In this case as represented by what we know about

their occupation.

their age.

estimates of these things, plus what their expected age would

Because we have information on that and

Which then translates through the standard

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be, given the age they are about how much they would lose.

That's one of the reasons why age plays such an important role

in the sizing of these awards.

derived from the economic damages associated with this.

Because it is fundamentally

Typically, in these datasets, a claimant who is 65 years

old, has an economic damage of approximately $850,000.

75-year old typically has damages that are in the mid or the

$530,000.

amounts, individually, depending on the occupations and the

states.

range.

Again, there's a fair amount of variation in those

But the -- those amounts are typical within this

And then finally we have the noneconomic damages.

And

we've estimated that using the publicly available verdict

data.

addition, some of the verdict amounts actually give you the

jury's estimate of what the economic damages amount, but not

typically.

amount of compensatory award.

damages amounts were for -- from Dr. Brown's model, I can

calculate what the typical economic damages are across the

various states, based on whether it's one of the high, medium,

or low states, or actually what the life status of the

individual is at the time of the verdict.

testimony in this case already, the verdict amounts will

differ, and have potential differences based on whether or not

We've calculated what the economic damages are.

Generally what you're getting is just the total

But knowing what the economic

As we heard in the

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the plaintiff is alive in the trial, versus whether they

aren't.

shows?

slide.

that is represented by the claimants who actually live in the

states or file their claims in states -- we don't know

actually where they live -- but file their claims in the

states which had high value -- potential of the highest

noneconomic damages.

And that affected these calculations.

Turning to Slide 43, can you tell us what this graph

It looks familiar to a previous slide.

Yes, it is.

But this is just a component of the previous

So this is essentially the part of the previous slide

You can see where I've drawn a line on this which is

actually the regression line that shows you the general trend

that you get by fitting that line with the regression model

which estimates the impact of age.

downward at about a rate of four and a half percent per year

of increased age.

What are those little specks?

Oh, each one of those specks is one of -- is the results

from the calculations of the model on each one of the pending

claimants.

I think that line slopes

So these are the way we come out with the total model is,

we've done the valuation with the model, the economic damage

model, and then based on the state they are applied the

noneconomic damage multiples to get to these points.

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done and that's what those are.

states?

Those are the highest-value states.

Then we have a yellow curve on Slide 44.

That's the same thing for the medium-value states.

if you do it -- click it one more time, you're going to get

the lowest-value state.

Okay.

So this curve is what you call the highest-value

And

As you can tell, there's -- actually the most points are

in the highest-value states, which is not too surprising.

The

analysis that we show is that when given the option,

plaintiffs will file in the venue which gives them more

likelihood of the largest potential outcome.

undertook to determine the values of verdict?

Right.

Now one of the experts retained by the committee in this

case, Dr. Cleveland, criticized your regression.

consider his criticism?

He didn't actually have access to -- for some reason the

attorneys didn't give him background material.

unaware -- I attended his deposition -- he was unaware of it.

Even with that, he interpreted what we were doing with this

data, with this regression incorrectly.

Now you described the regression analysis issue you

I did.

Did you

I think his criticisms were misplaced.

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The point is, is that we know that there's selection that

goes on between the states.

get tried, as I indicated over here on the chart, when I was

talking about here, the cases that are tried are distinctly

different from the cases that aren't.

That there is -- the cases that

I could do exactly the same chart, relative to the

evaluation of the two parties about what the total

compensatory award share would be.

commonality on those things, you'd expect to see them along

Again, when there's

this line.

But when there are differences, you would expect

to see them over here.

unusual highly selected cases, in some respect.

ways --

explain that criticism as lobbied first --

I'm sorry.

Essentially, just explaining the problem a little bit in

the first place, which is the criticism was -- well, the

verdict amounts that we see, when you look at them, they tend

to be from claimants who are younger than the average claimant

is.

jurisdictions, the other ones.

be alive at the time of trial, than the pool of claimants who

generally file claims.

So there's -- essentially these are

I hate to interrupt you.

One of the

It might help you if you

That's what I was going to do.

They tend to come from states which have higher value

And they tend more likely to

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So if I want to use that data to estimate the potential

value of the claims -- of the potential verdict amounts for

the plaintiff in general, I have to account for those

differences, otherwise I'm applying an average which is the

wrong average to this group.

the verdict and apply it to these claims.

I can't just take the average of

That would be like taking the newspaper in a place like

Los Angeles and looking at the ads for Beverly Hills and the

ads for South LA, which is a poor area.

And seeing that the

ads were 50/50 in the newspaper for the high value and the low

value, taking the average of those and applying it to all the

houses when you know that only 5 percent of the houses in

Beverly Hills, and 95 percent of the houses are in the other

area.

them to do it right.

You have to control for the differences in the mix of

So what I did was made a regression analysis which

related the value of the claims to the age of the claimant --

the value of the verdicts, the age of the claimant, the life

status of the claimant, and the jurisdictions in which they

are in.

That is -- gave me a -- the test of that particular

regression gave me a reliable relationship between those

variables, which I knew were different in the -- between the

claiming pool and between the verdict pool.

me a basis to properly calculate these average particular

Which then gave

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verdict amounts for each of the jurisdictions.

have the impact that each has on the variable, and I can apply

it so it will properly weight them.

I take the newspaper ads for the house prices and if I go and

take the ads and weight the ones from the South Central LA by

95 percent, and the ones from Beverly Hill by 5 percent, now I

have an average that I apply to the average, typically, which

gives me the overall proper average.

Because now I

Just like, you know, when

That's why when I said that the average is here, for

example of claimants -- verdict amounts prior were typically

between two and a half and four and a half million dollars.

If I just simply take the raw average of the verdicts, I would

get the wrong average amount.

6 million, $7 million.

drawing from claimants in this area of this, rather than

counting for the weight that each portion has of the total, by

the age.

this part of the graph, not up in here, which is where the

verdicts tend to be.

entitled, "The Selection of Disputes for Litigation" by Priest

and Klein in 1984.

that discuss the concept that you're talking here about the

selectivity of disputes that are for trial?

It comes out more like

But that's because I am more typically

Because, in fact, most of the claimants come from

You described earlier in your testimony an article

In fact, you had a quote from that.

Does

Yes, that's why I put that quote in there, bring that

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point home.

determine the potential compensatory award, did you account

for the differences in state law apportionment rules?

I did.

Describe what you did there.

Okay.

that I have here, and the partition of the states I have here,

are not what I was just describing before.

Okay.

Now, in rendering your estimate, after you

I did.

First I want to draw the distinction.

The states

That partition is

done in a different way with a different analysis.

to do with potential for the size of the awards, which is not

related to whether or not the states were joint and several or

effective.

just wanted to make sure there was no confusion relating to

that here.

So this is a different thing.

That had

There's three, so I

But on Slide 46 we have a picture of a map which is color

coded.

We have three different states which are green, which

we have labeled as hybrid.

which are joint and several.

represents the vast majority of the map says, effectively,

several.

We have some light blue states

And then the dark blue which

Well, effectively several is relevant here, because many

of the states have essentially hybrid in a different way than

what New York and California are, and officially Nebraska, but

there's almost no claims there so it doesn't really make a

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difference.

They are hybrid in a different way, which is,

essentially, they have a threshold.

Many of the states have a

threshold, which is if the jury determines that -- I think

this was already mentioned in the court.

threshold that a particular company is more than 50 percent

liable, is generally where the threshold is, then they can be

joint and severally liable for the full amount of the verdict

amount -- verdict award.

If the jury has a

However, if they are below that

amount, they are only liable for their several share of the

total.

Since that threshold is 50 percent, and our analysis

shows that the number of potential liable parties is somewhere

in the neighborhood as I will explain of about 36, and given

that Garlock is a low-dose defendant, it's virtually

impossible to imagine a situation where in any kind of a fair

proceeding, Garlock would wind up with a 50 percent liability

determination that would put those states in joint and

several.

20
21

So for purposes of my analysis, I've treated them as

effectively several.

So this is the -- shows the distinction between them, and

we've taken account of that and how we've partitioned and

treated the amounts of offsets and trusts in our analysis.

Now turning to Slide 47.

Would you describe the

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alternative ways that you considered for measuring the numbers

of co-defendants and trusts with whom Garlock might share

liability?

liability, there has, as been described in the courtroom

before already, a number of different liability theories which

can lead to a liability for the defendant.

8
9

Yes, I will.

So when we consider what makes a basis for

Clearly, there is the direct exposure to the product as

being the source of the exposure.

Indirect exposure related

to, generally we called take-home, that is through the clothes

of a co-worker who came home with the asbestos dust on her

clothes, and generally represented as being somebody who, you

know, washed the clothes and got the -- or cleaned the clothes

of somebody and got the exposure in that manner.

Bystander exposure.

That is somebody who worked in

proximity of somebody who was doing work with the product but

didn't actually do it.

But there is also the possibility of lawsuits based on

the design of the product was designed to have asbestos with

it, and so that creates liability.

products that had asbestos in them, we saw the example of

Pacor was a distribution company and a number of

the companies which are referred to here distributed products.

Companies get sued because the asbestos is on their premises,

big oil refinery companies, power plant refineries often get

That you distributed

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sued by contractors who work on those sites if they come down

with disease, has been exposed to the product, it's not their

product but it's on their site.

the issue of conspiracy as been referenced here.

And of course there is also

For the purposes of my analysis, I have limited it to

just the first three.

So we're just going to use this as an

exposure basis.

being sued on any of the other four criteria, but its

co-defendants certainly have.

So, I mean, I'm not aware of Garlock actually

So for doing my analysis, I'm

going to treat all of the defendants -- the co-defendants I do

analysis on the same basis, that is, we're going to limit it

to exposure basis.

Several ways you could think about trying to get a handle

on the number of liable parties here that we get.

The first

is to use a term that was given by Patton in his expert report

in this matter.

"exposure in fact".

simply with reference to a site in a trust, does not represent

exposure -- allegation of exposure in fact.

heard lots of debate over that topic.

Mr. Patton referred to a term called

In his context he was trying to say that

We've had --

But if we think about what "exposure in fact" means,

there are literally hundreds of asbestos products each of

these individuals are exposed to in their lives.

24
25

Electricians get it in a number of different ways,

packings in various different kinds of electrical devices,
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wire coating.
In fact, Mr. Henshaw provided me a list for categories of

exposures that each individual worked in several areas

typically would have.

As we've seen from the list that was put on the board

yesterday, there's literally hundreds of different products --

our database showed thousands of different products that were

in fact asbestos products.

There are in this litigation, thousands of companies that

are sued, most of them under the exposure basis, but other on

other ways.

So one of the ways you could do that, is to simply assume

that all of the parties who could be sued because of exposure

in fact, would be shares in the liability.

plaintiff's theories that we're going to adopt about

contributions to exposure, those would be appropriate in many

ways.

have a reliable basis for estimating exposure in fact for each

one of the individuals.

basis, but I do think it gives context to what we've done.

A second consideration would be just look at the

companies that were named by the plaintiff, either in their

tort claims, or in their trust claims.

plaintiffs here have named 52 different co-defendants on these

cases.

And under the

But we don't have the information to do that.

I don't

So I rejected that as being the

Typically the

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We know that they don't collect from all of them by any

means.

target down to a small number of those who they pursue.

they have identified in their Complaint 52 potential parties.

But we'll treat that as being tort parties.

being just that, potential parties for which they have not yet

worked up evidence.

legitimate basis to sue them.

And they, in the course of their litigation, they

But

We treat that as

Though they have some, presumably some

That may or may not be 100 percent correct.

There are

after all venues in the United States which encourage filings

because the courthouse in the county makes money off of the

filings, and encourage filings for the purpose of raising

money for that purpose.

Madison County makes approximately $4 million a year off

of filings and answer fees by defendants, where the much

bigger county of St. Louis right next door makes about a

million dollars off of the same kinds of fees.

So the complaints that are filed in Madison County

have -- typically have hundreds of them, and that affects that

average.

So I'm not going to use that.

But if I take account of that, as well as the trust, the

information we know about trust fund, that would give you

almost somewhere 75 potential parties, as well.

hundreds that we expect exposures for, but not really a

basis -- namings may not be a basis for which we're willing to

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2

assert liability share.

The other extreme, the plaintiff themselves for their own

reasons, target one or two co-defendants in the litigation.

They name many.

probably anywhere will range from, you know, somewhere around

four up to 25 different of those defendants, depending on the

quality of their case and the nature of the case.

proceed to trial, they typically only proceed to trial against

one or two, and the settlement data, the recovery data that

we've seen, tends to show that they tend to collect as well,

high-value liability-like settlements from one or two, and

nuisance settlements from others.

the plaintiff strategically targeting the co-defendants

because it makes their case simple, it makes their case easy.

They collect from as the data -- collect from

But if they

But that's the result of

Imagine the case that we saw presented here about the

liability and the exposure that we have for gaskets here.

It's applied against Garlock, and it helps not to apply that

against the insulation companies at the same time, because it

focuses the attention, and that's the claimed strategy.

So I rejected each one of those and instead gone with a

basis for estimating the liability shares, based on exposures

that are identifiable by the plaintiff.

that is created here through the interrogatories, the

depositions, and trust claims from the sample cases.

have several hundred, nearly 1,000 claims -- over 1,000 claims

We've used the record

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that we have actually gotten products that are estimates based

on, and we've gone through those depositions, through the

process that Dr. Garcia -- Gallardo-Garcia mentioned discussed

and testified to earlier today.

And based on the product sample that we have, we come up

with an estimate that there's, in addition to Garlock, 13

other -- typically 13 other products, tort defendants that the

individual plaintiff can both identify, both the

asbestos-containing product, as well as the manufacturer, at

least knowing the brand of it, so that we can tie it to the

company -- so it's tied to the company.

We take 22 trusts, we also estimate there are 22 trusts

for which the plaintiff asserts exposure against in the same

manner that it asserts exposure in this case against Garlock

so we treat them as being comparable, and hence come up with

an estimate of approximately 36 parties who share in the

liability calculation.

of where we are.

estimate.

award?

Correct.

And now we're focusing on the parties, who under state

law, would potentially share in liability, or in the

apportionment of that award?

Yes.

Now let's pause for a minute and sort of take stock

You're talking about your liability

You started with the potential for compensatory

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Correct.

And you determined that there would be on average --

Typically.

-- typically 14 tort defendants including Garlock?

Correct.

And 22 trusts?

Right.

Would you explain for the Court the source of your

information about the numbers of tort defendants and trusts?

Well, it comes through the depositions and the

interrogatories -- for the tort defendants comes through the

depositions and the interrogatories provided both from claim

files we had from Garlock as Dr. Gallardo-Garcia referred, as

well as plaintiff's interrogatories and depositions that were

provided by the plaintiffs in this case.

group was referred to as product sampling.

Particularly the

So there are ones that essentially appeared to be

complete record of -- if anything, they tend to be the cases

which I think have better cases against Garlock because they

were, historically at least the ones where the cases were

worked up by Garlock against the plaintiffs, so I would think

they would be the ones that would be most strongly positioned

against Garlock.

24
25

Most cases when you have cases that are dismissed, as you
saw from the samples that Dr. Gallardo-Garcia put up there
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before, we got a much lower yield we get claim files on

dismissed cases than we did on higher-value cases for exactly

that reason.

paying for on low-value cases and what you don't get in

dismissed cases is much more filed.

You tend, in many cases, what you're basically

Sometimes the cases are dismissed later in the process so

you do get the file, but many of the cases is simply dismissed

early in the process, tend to get less of that in low-valve

claims.

For the trust claims data, we have a combination of the

information that we got from the DCPF Trust, mostly this

information comes from the PIQ, the plaintiff information

questionnaire, where they disclosed about their trust filings

and the like.

designated plaintiff's claims, that the claimant's filings

recovered from a lot of trusts.

the analysis that we talked about before.

kind of site-based analysis that we've done there.

Dr. Gallardo-Garcia described that as being -- it would have

been much too onerous a task to do it, given different ways in

which that information -- site information is entered into the

data.

And I believe the Court has already seen in the

Right.

I think this is a conservative estimate, based on

We did not use the
I think

The data claiming exercise of that would have been truly

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a mammoth exercise.

But with the data that we did have from

the PIQ and the claim we did there, we came up with a number

of 22.

and exercise to do that for potentially another three or four

trusts exposures.

number, given the information that we've seen.

that plaintiffs would typically identify exposure to, did you

also determine the typical aggregate recoveries that claimants

And it didn't seem worth going through that expense

So I think it's a fairly conservative

In addition to determining the number of other defendants

against Garlock would be expected to receive?

case, several pieces of information from a supplemental sample

of questionnaires.

sampled PIQ claimants, which we got responses of approximately

850 gave us four pieces of information other than the

identifying record, which was essentially the number and total

dollars recovered from paying tort defendants.

have the individual values, we just had the total dollars and

the total number.

dollars recovered from paying trusts.

I did.

We received, through discovery in this

There were essentially a thousand randomly

So we didn't

Then we also had the number and total

So I went through in my report and did a test for the

completeness of this data, and to see whether or not based on

what I know and what the data would tell me about whether or

not I would expect to see significantly more recoveries from

that.
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And after all, by definition, these are not completed

cases from the standpoint of Garlock.

Some of them won't get anything from Garlock.

number of them won't get anything from Garlock because they're

older claims and historically we know, you know, somewhere in

the neighborhood of half of them don't get paid from Garlock

in recent years.

8
9

It's in the bankruptcy.

A substantial

But the recoveries themselves appear to be essentially

complete, but for the Garlock amounts.

To the extent that

they are owed one, we notice that through the data, typically

they range from $400,000 up to $900,000.

or nine defendants.

Typically from eight

Though that's typical, in fact there's -- these amounts

are quite skewed in the distribution.

There's a small number

of claimants who get a lot of money from this process.

There's a small percentage of them get multimillion dollars

out of this process.

less, the lower end of this or even below.

And then most of them get considerably

And included in this group are a series of claimants, as

well, which I think is about almost 10 percent of them now as

an emerging class of claimants who are only recovering from

the trusts, so they have zero tort recoveries at all.

are the typical range for the ones who actually did recover

from it.

But on average, the number comes out to be in the

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neighborhood of about $560,000, once you take account of the

various claimant characteristics and so on.

The trusts on the other hand were very different.

Remember that the trusts only just started paying claimants in

the period -- significant amount of money in the late 2007

period.

slide to show when the assets were in place.

took some time to come online, it's actually taken longer

than -- certainly longer than Garlock was hoping, and

So it's really late in the decade.

Mr. Magee had a

Those trusts

certainly longer than we expected in our forecasts for those

companies to go through the bankruptcies, get trusts set up

and start paying claimants.

By the time they did get up and running, many of them had

fairly extensive backlogs, particularly hundreds of thousands

of nonmalignant claims that they had to run through before

they could get to the current crop of mesothelioma claimants

who essentially would represent the bulk of the claimants

today.

So we get in the late 2000s is the first time we get to

the period when we are actually starting to see claimants

being able to recover, potentially on a contemporaneous basis

with the trust.

There are still trusts which are not set up and running.

And a lot of these claimants have filed their claims late,

relative to where they did with their tort claims.

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So for the current Garlock claimants, they still haven't

filed all their claims.

filed.

date, so many of them have filed claims subsequent to that,

but they are in the queue and waiting to get their turn to be

paid in many cases.

And they still have claims to be

So it's several years have passed since the petition

So we estimate that at the present time they probably

recovered about half of the money that they will eventually

get, and it will typically be in the range of $600,000 from

somewhere in the neighborhood of what we said, 20, 22 trusts.

That number can be, you know, considerably lower, but also can

go up to as high as 30 or 35 of them, depending on the

particular claimant.

slide show now.

applied the apportionment rules to your estimates with respect

to the compensatory awards, and the numbers of responsible

parties, and the recoveries that you estimate.

quickly because I think Your Honor has saw this when

Mr. Cassada did his opening statement.

what it was that we did here a little bit.

Okay.

Now, Dr. Bates, I'll hand you control over the

I want you to describe for the court how you

Well, I'm guessing I can probably go through this fairly

But at least explain

This is a chart which essentially shows how we did the

apportionment, relative to the states which have the several

share.
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Essentially we came up with, as I describe, 36 tort

defendants and trusts, the combination of 14 in one, 22 in the

other; Garlock being one of them.

For our analysis we treated them all as being equivalent

from the standpoint of liability purposes.

My reasoning

behind that is that Garlock is a low-dose defendant.

its co-defendants are either the low-dose defendants

comparable to Garlock, or they are insulation and friable

products defendants, which would mean that typically you would

Many of

expect them to get much higher shares, depending on how the

dispute plays out, as we saw in the courtroom in the science

phase here.

But under the unusual circumstance cannot contemplate any

situation which rationally would wind up with Garlock having

a -- more than a 1/36th share of the total when there are 36

responsible liable parties on this.

So essentially this shows just a graph which shows you

that Garlock is one slice of the 36.

states, that's what they would get assigned.

In the several share

Now, in the states as a whole, if the trust were able to

fully cover their liability and all of the evidence is

presented to the jury in a comparable fashion, you would

expect all states essentially have the same outcome.

only in the fact that potentially the trust may not be

covering their full share of their liability.

So it's

Where that

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comes into play and whether we have to consider whether it's

several share versus not.

Now we don't actually know whether those companies can

share in their liability.

Mr. Swett has been in front of you

and said they are paying, "pennies on the dollar".

that.

actually see that fact.

It's not a fact that they're paying

pennies on the dollar.

It may be relative to their scheduled

amounts.

I question

We have never been granted discovery, the ability to

But in many cases I call into question from what

I've seen about the size of the amount that's been put as the

face value on these claims.

So as far as a liability estimate for those claims, we

just simply don't know whether or not they are covering their

share of liability or not.

But for purposes of this analysis, I've done it several

different ways.

share, another which treats them as being essentially as if

they were a limited amount and treats them as if they were

simply offsets of the verdict amount.

One which attributes them an equal pro rata

The third one is to treat -- in fact, one of the

benchmarks I've done is to treat everybody as if all the

jurisdictions were joint and several, and all the dollars,

whether from the tort or the trust were simply offsets against

the verdict and Garlock was simply the final party.

So in the several states you would simply divide them up

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1

in this way.

In the joint and several state where you're

taking in account just simply as dollar assets, trust payments

would simply be represented as a subtraction off the total

amount of award.

total amount of the award at the end of conclusion of trial,

assuming that the plaintiff won the award, we would

essentially subtract the trust payments off, and the remaining

14 defendants would basically get one pro rata share of each

of them.

So to the extent that this represents the

That's the way we treated those.

For the hybrid states, what makes these states different,

particularly California, New York model in particular, is, the

defendant is severally liable for the noneconomic damages, but

joint and severally liable for the economic damages.

that's a reason again why it's important to have that

partition.

helped in terms of portioning the liability in this way.

It didn't just help in our estimation, it also

So for the noneconomic damages, all the parties who are

assigned, are assigned a share of the outcome, whether they're

considered to be bankrupt or not, whether considered to be

full or part of their share.

a full covering of a share is borne by the plaintiff in that

consequence, not the defendant.

The risk of basically not having

However, for the economic damages, the -- essentially a

calculation which is done, which essentially takes a portion

of the amount that you collect from the trust.

Laura Andersen, RMR 704-350-7493

And that

DIRECT - BATES

2806

portion is determined by the ratio of the economic to the

noneconomic damages.

the award, as this picture would say, then half of the

recovery amount would be used as a dollar offset against the

economic damages.

be divided up among 14 remaining tort defendants.

7
8
9

So if the economic damages were half of

And then the remaining portion of it would

So that's the three calculations that show how the

apportionment is between the various states.
Now, it's crucial within how we are doing this that we

are dividing and treating all the parties, all the tort

defendants and all the parties within the litigation

symmetrically.

many respects.

We're treating them as being comparable in

So it's not -- we're not going to allow for, as we said,

all the information is taken into account, all the parties are

treated symmetrically with regard to liability calculations,

so that it makes no sense for us to essentially allow all of

the liability to get assigned to one party who is targeted,

and none of it to the other parties who settled out, and then

turn around and apply that same analysis to one of the other

parties where they then get assigned all the liability and all

the remaining parties are treated -- so all the parties have

to be treated symmetrically with regard to the law equally

under the law with regard to liability and the analysis that

we've done.
Laura Andersen, RMR 704-350-7493

DIRECT - BATES
Okay.

2807

determined or estimated Garlock's share of a potential

compensatory award.

success being a part of the equation?

Right.

How did you -- or did you use Garlock's actual trial

experience in determining -- or how did you estimate

Garlock's -- plaintiff's likelihood of success against

Garlock?

Now you also described the likelihood of

record of its trial record.

of about 83 cases, which you've seen a table of the analysis

of each partition of that between plaintiff and defense

verdicts through time.

Right.

So you've described the process by which you have

We've seen -- so Garlock provided me with a

And we had essentially a history

Here essentially we're going to use that trial history as

the basis for creating benchmarks of what the liability would

be.

results against the claimant data that we set.

Then we're going to test that, the validity of those

As I referred to over here, you know, it's very clear as

we said over here, that the tried cases are not expected to be

typical of the settled cases.

applying the results more broadly in an exercise where we're

trying to determine the liability of all the cases, relying

simply on the trial data there, we need to test that

against -- the veracity of that against the other data that we

So when we're talking about

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1
2

have.

Because there's so much more data in that case.

This is the chart on page -- Slide 54, this is the chart

that Mr. Magee showed you.

It shows you that -- what the

difference in the trial outcome was.

in this outcome is what we call the information regime on the

right-hand side.

testified to, and as Mr. Magee testified to, the information

that was presented, and how the information was presented in

the context of litigation matters.

And what I've described

And it clearly indicates, as Mr. Turlik

And it matters

significantly to the potential outcome of the case.

Their own

experience with regard to using -- having information about

what a plaintiff's exposures are, and the form of that matters

to the potential outcomes as we've seen through the testimony

in this case.

So we have partitioned this into three different

information regimes, that based on my understanding of the

litigation environment, as well as my understanding of

Garlock's history in interviewing with Mr. Magee and the

defense attorneys who work with him, that in particular, in

the period prior to 2000s, we had a period where Garlock had

36 trials for mesothelioma cases, and won all over 90 percent

of them.

Again, a small growth, probably unrepresentative, but it

is, shall show you that the plaintiffs willingly -- in

environment where the plaintiffs willingly espouse exposures

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1

to reorganize, companies even in the cases that they chose to

take to trial, Garlock prevailed the vast majority of time.

Where they ran into problems in their verdicts was during

the time period from the period of 2001 to 2005.

described in my report, this was the transition of the period

the plaintiffs were increasing their demands on Garlock.

Garlock started to pay increasing amounts to some of the

claimants, but at the higher end of the demands that they were

getting were much, much higher than they experienced before

10
11

And as I

And

and resisted.
The plaintiffs demonstrated that by particularly

targeting them -- and as we now know, withholding or

strategically presenting the evidence and positioning a case,

as we saw here with regard to the importance of gasket

exposure relative to the insulation exposure, and claiming

that they are in many cases, perhaps equal in some ways.

Which, you know, doesn't make any sense to me, but I saw how

the evidence was presented on that.

that's when they had the worst results in their history.

They lost more cases, and

Going into the latter half of the decade, Garlock started

spending considerably more on its trials.

more on experts, developing testimony, investigating, and at

the same time the trusts had began operation.

24
25

It started spending

The plaintiffs now have an option of getting money from

the trust by filing a claim.

They don't want to be left out

Laura Andersen, RMR 704-350-7493

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2810

to face the prospect of there being less money in the trust

when they come about.

And particularly the tactics of having one attorney file

the trust claims and another attorney handle the tort claim,

essentially raises the prospect that the tort claims and the

trust claims may proceed on tracks which are perhaps not

always fully coordinated, which essentially provided some of

the evidence that Garlock could use.

more claims, more money.

They also started paying

As I mentioned in my report, the fact is that they pushed

the threshold down a little bit by paying a few more claims

more money, and as a result, the claims that were left that

the plaintiffs chose to take to trial on the margin, were not

near as good of cases and Garlock would prevail on those

cases.

So I have these three different information regimes.

in terms of the way I would think about the liability from the

context of what we were estimating here, the period of the

1990s more fairly represents the period of the trial outcome

of what Garlock would face with all the other parties being

represented fairly equally in the courtroom with regard to the

exposure evidence was there.

And

So I've removed from it, in my estimate, the parts of the

information regime which the trust information was not

provided -- was not represented in the same way and that's the
Laura Andersen, RMR 704-350-7493

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2811

best estimate.

for my estimate.

likelihood of success?

I did.

What did you find about whether that was an accurate

estimate of the likelihood of success that plaintiffs would

have in trials?

10
11

And that's why I chose the period of the 1990s

At the risk of being redundant, you tested that

Right.

So I think actually we've got some information on

the next slide which relates to that.

As I described in the earlier period here, when I looked

at the cases, I used the settlement data in the way that I

described, to come up with estimates of the liability

likelihood, both within the -- for all of the cases, parsing

them in the way I did here.

the claimant characteristics and the settlement amounts and my

estimates of what the avoidable costs are and the potential

verdict amounts, allows me to back into a calculation for each

one of them, what the liability likelihood would have been for

that case, given the amounts that we estimate that they

recovered, as well as the amounts we expected, for the most

part at that point they had not recovered much in the way of

trust claims.

24
25

Each one of the cases, based on

So the settlement data actually took place in an

environment where they actually didn't know all of that
Laura Andersen, RMR 704-350-7493

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1

information, so you have to account for that in what we did.

But in the face of that we found that the upper, nearly

5 percent, bullet says 4 percent because it literally was

96 percent, 4 percent of cases we had that the likelihood --

indicated likelihood of success on those cases in the 2000s

amongst all the settled cases -- this is not going back to the

period of the 1990s.

from the 2000s.

This is using the actual settlements

And implied likelihood, the calculated likelihood for

those cases averaged within that group 17 percent.

Now some

of them are 100 percent.

that entire range along that diagonal on what we have.

We have a series of them, they cover

But what this particular analysis showed that in the

picture that I had here, that 96 percent of the cases are all

right there.

this range.

the most part.

scattered around here.

100 percent, some of them are 50, some over there.

is several hundred of them compared with thousands of them at

this point right here.

showed us.

Then we have a series of dots that run along

A few that we have verdicts are out over here for
But we have all of those dots that are
Some of them are up here at
But this

And that's what the data analysis

And when you did that test and you calculate an average

across all of those to what you found by weighting the

averages of 4 percent times 17 percent, plus 96 percent at

Laura Andersen, RMR 704-350-7493

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2813

essentially zero, you got the typical -- for applying this to

a typical claimant, the appropriate average amount would have

been more closer to 1 percent across the entire population of

potential claimants who would assert contact with Garlock

product.

MR. CASSADA:

Your Honor, we're closing in on

putting all the components of this together in this second

part of the opinion.

on this --

I estimate we're about 15 minutes more

THE COURT:

Why don't we take a break.

MR. CASSADA:

THE COURT:

(A brief recess was taken in the proceedings at

Okay.

Come back at 10 after 4:00.

3:58 p.m.

Court resumed at 4:12 p.m.)

BY MR. CASSADA:

tested your assumption of likelihood of success.

Yes.

Had you completed that?

Yes.

Okay.

estimate of the share of compensable award and the likelihood

of success, what was the next variable that you estimated?

we have accumulated so far to the claims data, to come up with

Thank you.

Okay, Dr. Bates, you were describing how you

Yes.

I believe we went through that.

All right.

So now that we've determined an

Well, the next thing to do is to apply the results that

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2814

our estimates for this, and how they apply to both pending

claims and future incidence.

different populations in data.

So we did this to the two

So we have for the pending claims we have the data.

use the data that we obtained from contact with Garlock's

asbestos products by identifying the potential liability

candidates.

PIQ process, for which Dr. Gallardo-Garcia talked about.

And those were the claims that remained after the

So we essentially divided the pending claim data into two

groups, those which could establish and asserted contact with

Garlock's products.

trial are the ones for individuals who assert contact with

Garlock's product.

basically make it to the point of a trial and those that

don't.

Because after all, the claims that go to

So that's the minimum requirement to

And within that group, the claimants, we applied,

essentially, the categories of -- we did an analysis of the

categories with regard to the groups of contact that

Mr. Henshaw gave us with regard to how the claimants were

divided.

As far as the valuation of the claims goes, that part of

it didn't play any role in the valuation of the pending

claims, it simply gave for us a determination of what fraction

of the pending claim would meet that qualification.

And so we essentially take the -- each one of the pending

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1

claims.

asserted, either direct contact with either Garlock packing --

excuse me, Garlock packing or gasket product, either directly,

indirectly or through a bystander basis, and treated them all

symmetrically with regard to our liability estimate.

We use the PIQ data to establish which ones had

We estimated the aggregate compensatory amount we expect

each one of them could get.

We estimated the recoveries for

each one of them.

and from the tort recoveries from the other claimants.

Both from the -- potential from the trusts

used the -- essentially the data on the states and

jurisdictions to partition the awards.

of them the likelihood -- liability likelihood that we got,

and essentially that gave us a valuation of the pending

claims.

We applied to each one

For the future claims, of course, we don't know which

ones they are yet.

the more extensive exercise and use the epidemiological model

we have for future claims.

the contact groups as defined by Mr. Henshaw, because within

those contact groups the PIQ data reveals that different

percentages of claimants assert contacts with Garlock's

product.

So for that purpose we have to go through

For that purpose now we did use

We didn't try to do anything more sophisticated than

that, other than identify them.

There are differences within

the contact groups but -- with regard to the likelihood of

Laura Andersen, RMR 704-350-7493

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2816

having contact and the amount of contact they had.

this purpose we've done a simpler analysis and just used the

fact of contact as being the relevant characteristic of the

data.

But for

So we used the data on the PIQs to basically partition

the future incidence of these, which is represented by the

small picture of the future incidence curve over there which

we typically use in these cases.

the contact groups that Mr. Henshaw defined, it's on Slide 56.

And we partition them into

On Slide 57 I actually will show you how we divided up

those groups.

moment.

liability, are all of those claims, claimants who actually

just established contact with a Garlock gasket?

Who asserted contact.

That was the plaintiff's representation of it.

That was assumption one, was it not, of the assumptions

we asked --

It was.

And as you described that earlier as a claimant-friendly

assumption?

the case to trial.

Okay.

Before we go to Slide 57, I want to pause for a

You said that the claims for which there's potential

I think it's at least a minimum requirement for taking

I mean, most of the cases which Garlock

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1

paid, in fact, all the claimants that I know of, and the

policy I know of was that a claimant in order to get paid, had

to assert contact with a Garlock product.

an insurance requirement.

requirement, that it has to be someone who's asserted contact

with the product.

the basis for the -- now, most of those claimants as we know,

didn't get paid at all.

the calculation of the liability likelihood that we used when

That's essentially

They have that as a minimum

Same basis for the liability, and that's

But we've accounted for that fact in

we used -- recount for the settlement data.

For the trial cases it's only likely to be the

higher-value cases.

higher percentages with it.

assumption to use in this basis.

contact groups are represented in this?

the occupational incidence of mesothelioma.

aggregated peak, somewhere in the neighborhood of 2000, and by

2010 is on its way down.

mesothelioma.

use of asbestos in occupational settings.

The color coding shows you the amount of it which comes within

each one of the contact groups.

Okay.

Yes.

And for those, you know, we use the

It would be a claimant-friendly

Let's go to Slide 57.

You were describing how the

This curve shows you the result of the -- model of

It shows that an

This is not the entire incidence of

This is the part that is attributable to the

We've divided that.

And so as we can see from this curve, we expect to have

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cases of individuals who will come out of each of those groups

going well into the future, though we are in a period of where

we are declining rather rapidly, and for a population that's

aging.

individuals where the incidence of disease has essentially

ended in 19 -- excuse me.

occurred in 1979.

account of the fact that there's been some assertions in the

testimony in this courtroom that there were exposures that

This comes out of a population, a fixed population of

The exposure to asbestos has

I've done some testing on this to take

could come from gaskets beyond that time period.

And I've

done some sensitivity of testing on that, based on the

evidence that I've heard, and it does not have a material

impact on my assumptions.

interest, but I don't think it has impact on the results.

over time, I believe you described it as a further refinement

of Nicholson's original incidence model?

thousands of populations of people that are aggregated

together, which have different -- within each ones they have

different levels of exposure to asbestos that are basically

derived from estimates in what's called, I think, Dr. Welch

referred to, "Job Exposure Matrix" in here.

the estimates of the relative exposure that each one of these

occupational estimate groups have.

I can quantify that if there's

You describe the incidence model that you had constructed

Correct.

Yeah.

So this is actually an aggregation of

Which refers to

And there's several

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1

thousands of those.

We then used in constructing this model, the --

essentially what we adopted what amounts to the -- what's been

called in here the regulatory model of the incidence of

disease.

to have a risk, instead of going all the way down to zero in a

linear fashion, the same way that Dr. Welch and others have

explained in the room here.

as being the basis for this model.

So we have actually allowed for low-dose exposures

So we have taken that assumption

It's the model that

Dr. Nicholson used, the risk model that Dr. Nicholson used.

And for our purposes we adopted the -- essentially the

plaintiffs' view about the contribution of low-dose asbestos

to the incidence of disease.

And in that basis we have actually expanded the

populations far beyond what Nicholson used.

Because his

population did not include the bystanders and the indirect.

We've included those in the way this model is estimated and in

our estimate.

So we have adopted, essentially, the plaintiffs' view

about the -- as described in here about the role that asbestos

plays in disease and assume that every incremental exposure

adds to the risk, according to formula, the 1986 formulas of

the EPA that Dr. Nicholson developed.

how you estimated the number of persons who have contact by

Now we're turning to Slide 58.

Would you describe then

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contact group?

prior curve, but done in bars.

the population, which based upon the PIQ of responses we

assert would -- based on PIQ responses, would assert contact

based on contact group with Garlock's product.

Yes.

This is essentially the part -- a portion of the

And it shows the portion of

Now there's several assumptions behind this.

The

assumptions I think are claimant-friendly assumptions in that

PIQ responses are population of people who actually sued

Garlock.

not the entire occupational incidence of the disease.

Which is not the entire incidence of the disease,

In fact -- so, by using the PIQ responses to partition

this, we've essentially assumed that the entire incidence of

disease is an occupational incidence of disease is a candidate

for our consideration for valuation.

fraction of that population based on the PIQ responses about

what fraction of the people asserted contact.

And we then take a

Well, the denominator in that case, the number that we

were using, was the number of individuals who sued Garlock in

that contact group.

people in the incidence of the disease.

fraction to the future incidence of disease, we're adding

extra people into that.

24
25

That number is less than the number of

So when we apply that

This estimate, the estimate we have here, is essentially

independent of the claims -- the history of the claims that
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1

Garlock has in terms of the number of people filed, which

essentially just comes out of the incidence of disease, and

the fraction of that incidence of disease that would assert

contact, assuming that it's the same as in the PIQ response

group.

of propensity to sue based on the history.

the ground up based on that data.

8
9

So there's no equivalent to what would be the concept

It's built up from

So each one of these bars shows you the fraction of the

people -- the number of the people within each one of the

contact groups that we are going to run through the valuation

model, apply a likelihood of success, estimate of compensatory

damage amount for them, and estimate the relative shares based

on -- for this purpose, that's what this represents.

estimate --

Okay.

So now I think you've described how you

THE COURT:

But there's no percentage in there, says

"percentage of incidence".

chart, is it?

19
20

THE WITNESS:

There's no percentage on the

I'm sorry.

This represents only a

percentage of the incidence.

THE COURT:

I gotcha.

THE WITNESS:

Just to flip back for a moment so we

can see.

This chart peaks at around -- well, at 2010 it would

be somewhere in the neighborhood of 1900, 20 -- 2000.

go to the next chart.

So we

We have for that year -- well, use this

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1

number.

1,000.

percentage of that population.

BY MR. CASSADA:

you have estimated each variable in the model.

described the model.

the variables in the model rendered your estimation results?

10
11

We have a number here that's just slightly over

So we're taking slightly more than 50 percent of that

Okay.

Right.

Sorry for that confusion.

So to recap you estimated -- or you described how

And you've

Can you now describe how the input of

So we applied the model that I've just talked

about to each of the claimants in the pending claim group.

I've essentially created three benchmarks, as I've

described in my deposition, to do an evaluation of that.

did a calculation associated with the pending claim groups

where I treated all of the pending claims as if they were

several share, that is, as if there was a full share recovered

by all of the -- the trust had the full share of liability

covered through for this model.

I did another calculation where I applied it in this way

which was the combination of -- for the states that were joint

and several, I did that calculation.

several I did the calculation I described.

model I did those.

them all as being joint and several calculation.

For the states that are

And for the hybrid

And I did one whereas I said, I treated

We know that from the settlement data -- the verdict

data, we got an estimate here of approximately 8 percent.

Laura Andersen, RMR 704-350-7493

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1

know from the testing of the settlement data that that number

is really less than 8 percent, and likely much, much less than

8 percent.

Essentially we have here -- we call it -- we put this as

the formula as if it was a number.

In fact, what we did was,

we did these for each of the individual claims, multiplied it

by a likelihood percentage, added them up to get to

essentially for each one of the pending claims.

do that, we come to the conclusion that the aggregate total is

And when you

less than $25 million.

And how about future claims?

Well, again, we did the same thing with this population.

Only instead of applying it to the individual claims on the

pending claims, we do it to the groups of claimants within the

future claim group, and on the basis of that come to the

conclusion that the total is less than $100 million.

likely to be given that the 8 percent is significantly much

bigger given the large volume of claims that we have here, the

8 percent is likely much too big, the number is less than

$100 million.

your estimation results are.

difference between liability and settlements.

described the difference between an estimation of liability

and an estimation for financial statement purposes?

And

Now you've described today the difference between -- what

You also described the
And you also

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1

Correct.

Let me ask you to look at the next slide, and describe

the information contained in this slide.

questions that were asked me by Mr. Guy in my deposition, when

he asked me at the end of it, had I done any analysis what I

would get out of my financial reporting models that I used, if

I extended them out to the end of the period of the -- for

which the model ran.

Well, this slide was prepared as a result of some

The same time period that we have here,

of going out 2059 essentially.

mesothelioma claims.

model out?

I used it only for

What would I have gotten if I run that

So the differences between what we've done in financial

reporting was that we -- one, we had other diseases included

in the number of reported.

And two, we didn't account for the -- we didn't take a

present value calculation.

But in terms of the numbers that are reported for the

financial reporting purposes, they only reported the nominal

amounts.

It's in the model that we had.

For counting reasons, some of the accounting firms don't

want to use a discounted number.

balance sheet a revealed total nominal value amount.

that's the choice that they did.

They prefer to have on the

So what this chart has done is, I've put in perspective

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the -- our calculation here of Garlock's asbestos liabilities,

which in total is less than -- I'm sorry.

$125 million.

the financial reporting model in a couple of different

circumstances.

Is less than

With what I would get using that same model,

As I described in my deposition, if I have this amount

here, which was essentially what I would get if I had the low

end of the financial reporting range I had, which was a number

that ran somewhere in the neighborhood of 330- to

10
11

$430 million.
This is the number I also get in my rebuttal report when

I take Dr. Peterson, Dr. Rabinovitz's estimates and do the

corrections for the data and estimation that they used, and

then apply my estimates of what the impact of full trust

transparency would be on their estimates.

That's essentially what we were trying to capture at the

low end of financial reporting range, is the impact that the

trust would have on the information that would affect the

settlements.

And we didn't have the model and we didn't have the data

to do it in the way we did here.

using the period of time from the earlier periods, to

calibrate to the time period from the 1990s, at which we would

then take a partial revision to that amount.

So there we were essentially

Just to get the idea of what we were talking about there,

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is this is the amount that you would get down here if you

would have applied in the range of 140 to $200 million.

you applied the experience of Garlock in the 1990s to the

filing history that we see in the 2010 period going forward,

and apply that to the pending claim.

gives us an estimate of what would be equivalent -- in doing

the financial reporting, this is what we would calculate -- is

what you would get if you had the experience of the plaintiffs

fully avowing their exposures to asbestos products, in

So essentially that

particular the insulation products and the friable products as

they did in the 1990s.

And in that period, that's probably the situation which

was the best for Garlock in terms of defending claims, and

it's going to have the biggest impact.

going to be targeting Garlock.

these.

the context of also targeting these insulation companies.

that's what you would expect to get when they are playing an

active role in essentially describing the exposures to the

insulation products and it's coming out of plaintiff's mouth

in their deposition and they're answering interrogatories in

the same way.

Because they're not

They're going to be targeting

Or if they're targeting Garlock, they're doing it in

And

On the other end of our financial reporting range is a

range up here that's in the range of somewhere around 610 to

$670,000 -- $670 million net present value.

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And this is the period you would get if you extrapolated

the current period of time, through the mid-19 -- mid-2000s

out through the end of time for the financial reporting of the

incidence of disease.

upper end of our financial reporting model.

That is what we would get from the

It's also what you would get if you basically take

Dr. Rabinovitz's model and Dr. Peterson's model and you get

estimates within this range, if you simply adjust for us to

get the same present value calculation and correct their data

errors and exclude what I call some of the adjustments which

Dr. Peterson makes and which I take exception to and think are

erroneous.

Those and models then, between the three of us we would

get within that range, again, a similar range of numbers all

within the range of 610 to $670 million.

MR. INSELBUCH:

I hate to interrupt, but this

material is not in Dr. Bates' report, or in his rebuttal

report.

backup material that results in these assertions, what the

computations are.

21
22
23
24
25

I'm glad to have it, but I would like to have the

Could I have that tonight?

MR. CASSADA:

Sure.

I think you already do.

These

come from the financial reporting that Dr. Bates did.

MR. INSELBUCH:

Well, he says so.

I'd just like to

see the calculations.

THE COURT:

Okay.

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BY MR. CASSADA:

Okay.

No.

context, these are the two amounts that I described in my

deposition, and I described these ranges to them.

I'm providing is context for how we did the calculations for

the upper end and the lower range, and then the perspective.

This is the middle of the financial reporting range that we

would get that we reported if you used the same model and

pointed out -- pull it out to the future in the same way.

that would be a number that started from mid-400s to

mid-$500 million in valuation.

Please proceed, Dr. Bates, or were you finished?

I was simply going to mention that within the

This amount

So the financial -- so the financial reporting model is

consistent with what we've done here, in terms of what it

tells you.

than we were.

reporting?

report.

Sure.

Was it your opinion in 2004 or so when you were first

engaged in late 2004, early 2005 in connection with the

financial reporting work, was it your opinion that Garlock

would -- a day would come where Garlock would likely get

relief from the establishment of the trust, and that that

Okay.

It's just we're focused again on different numbers

Can I ask you a few questions about the financial

Because the court has not seen your financial

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would have a downward impact on future expenditures?

expected that as I described this that the information that

had been in the litigation, would again be in the litigation

when it was a combination of when the trust would be paying,

they would have access to the discovery on the trust, and the

plaintiffs themselves would have a financial incentive to file

the claims with the trust.

Yeah.

From Garlock's perspective, it's a relief.

I don't think any of us anticipated at that point that it

would introduce the provisions that basically said that you

would not be able to get access to that information.

something to do with why we wrote the paper that we did in the

later part of the 2000s about having the tort vehicle too.

Because when we started becoming aware of those provisions

being put into the trust distribution procedures and the role

that those would play.

THE COURT:

MR. GUY:

It has

Mr. Guy has something.

Yes, Your Honor.

I'm happy to hear this

from Dr. Bates, but I'm assuming that this takes care of any

objections there are to the financial reporting being used in

the courtroom?

MR. CASSADA:

No, not at all.

This is an

explanation of why it cannot be used for the purpose that we

described earlier.

THE COURT:

All right.

Let's go.

Go ahead.

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BY MR. CASSADA:

account scenarios under which Garlock would get relief from

the establishment of the trusts; is that correct?

the ranges that we created, the -- one of the main sources of

the ranges that we considered was trying to take account of

the fact that we were moving into a future which is not going

to look the same as the past.

So then you rendered estimation opinions that took into

Yes.

That was the main purpose -- the main purpose of

What we have is data from the

past.

for that.

that, but we have the idea of what the impact.

We're trying to figure an appropriate way to account

We don't have all the data that we needed to do

So we created alternative scenarios, which in our

judgment reflected what the impact might be, presented them as

scenarios, because -- and we put some qualitative judgment on

which would be more likely than others.

In particular, this area of the range, somewhere in this

area here to down around here was in the area which we

considered to be most likely.

And in the period where we were reporting more in the

middle of the range that Garlock was disclosing -- EnPro was

disclosing the middle of the range, they would have used

numbers that were coming around in this range here.

three of those different ranges, and moving from the bottom to

I see.

So when you look at the range created by the top

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the top, that represents different degrees of transparency

that Garlock might expect to get from the trust in the future?

They have different ways in which the information is

available, how much of it's available, and how it's being

presented, and how that can affect the litigation.

that's what I'm representing through these scenarios.

you've given today, but can you explain the difference between

the upper end of your range of Garlock asbestos liability, and

lower end of the range, beginning with the -- the little --

what you call there, the low end of financial reporting range?

Well, the difference between here and here?

The difference between there and the top of the blue bar

at the bottom.

between this and this?

Yes.

Well, the difference between that is the amount that

Garlock would pay in settlements to avoid costs associated

with the discovery and the litigation in the case.

their avoidable costs by settling.

you had settlements in the midpoint of the range between the

plaintiff and defendant's calculus, and the actual liability,

Right.

I think of them, as I said, information regimes.

I think

I think this is probably obvious from the testimony

Oh, right here, the liability?

Oh, the difference

So that's

So if we're back looking at that model that you had where

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that would be the difference between the liability and a

settlement that took into account the defense costs?

That's correct.

Okay.

Well, in aggregate.

between what we estimate being between what is amount -- that

somewhere the liability amount is somewhere represented down

here.

amount that Garlock is essentially paying to avoid even larger

It's the aggregate total difference

And the difference between there and there is the

costs as we saw, of litigating all the claims.

Okay.

Obviously litigating all the claims is more expensive,

so...

first and second opinion.

opinion.

Okay.

Thank you.

THE COURT:

So now you've finished explaining your

We're going to turn to your last

Before you go to that, when he

summarized, I thought he said that future liability was

$160 million, which he added the $25 and then discounted to

present value at $125 million.

think, said $100 million for the future liability.

THE WITNESS:

THE COURT:

One of the previous slides, I

That's $100 million net present value.

That's net present value.

THE WITNESS:

And this was $25 million net present

value.
25

THE COURT:

Okay.

Gotcha.

Okay.

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BY MR. CASSADA:

payments in the future, but part of it represents the pending

claims.

So they are future in the sense that they would be

5
6

THE COURT:
that --

7
8

THE WITNESS:

I'm sorry, Your Honor.

Yes.

discounted it before in this calculation.

THE COURT:

10
11

He had put the discounted figure in

I gotcha.

MR. CASSADA:

Your Honor, any other questions about

this?

THE COURT:

No.

BY MR. CASSADA:

asked you to reach an opinion regarding adequacy of Garlock's

proposed funding of $270 million under its trust, specifically

whether that would be sufficient to satisfy pending and future

claim?

Yes.

Have you reached an opinion with respect to that issue?

Yes, I have.

What is your opinion?

I agree -- I reach the conclusion that Garlock's proposed

funding of $270 million is sufficient to satisfy the pending

and future claims under the debtors' plan of reorganization.

Dr. Bates, in the third task that you were given, we

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explaining the plan to the Court, and explaining the bases of

your conclusion.

Okay.

So we're gonna have to spend a little bit of time

So first -- can you describe, then, the conclusions you

reached regarding a value of the claims under the plan?

before.

procedure by which claims can be presented for payment and

requires certain information about the claimants' exposures

Right.

So, just to set it in context with what we did

Essentially the plan of reorganization provides a

and their alternative exposures to be presented as part of the

plan.

So with that back context, we expect to be able to

understand what would be an appropriate amount to cover that

as a settlement within the information regimes that we talked

about before.

Because, in fact, they're essentially intermediate to

part of those information regimes as I described.

the equivalent of fully espousing the exposures, but it's

cheaper than having to go and get them through litigation

discovery because it's an administrative procedure that they

have to go through before they get to the litigation, so --

potential for litigation.

It's not

So the information has to be provided, and has to be

provided in a way that is inexpensive for them, but it is no

longer costing Garlock in the form of litigation expense to

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get that, and hence it's a reduction in the avoidable costs to

Garlock and lowering in what we would expect to be -- expected

appropriate settlement amounts.

So essentially the estimate -- we're going to estimate

the settlement value of the current and future mesothelioma

claimants.

We have in the plan that specifies what that

amount is.

We believe that value has a premium that Garlock

claimants would receive under the plan of reorganization.

It's an amount that is in excess, significantly in excess of

its asbestos liabilities.

benefit Garlock received, so it's going to be less than what

they would pay in the tort system under the estimates that

we've got.

The premium is attributable to the

On the other hand, essentially it's above the liability

and significantly above, and there's no reason to believe that

if administered properly, the claimants wouldn't accept the

settlements and be incentivized to settle with the trust.

particular the way its structures pay different claimants

different amounts, particularly those who might have a

potential liability for Garlock.

had faced in the tort system to achieve the information regime

where it would actually get the information?

that translates, as we've seen -- a reduction in costs

So the plan addresses the transaction costs that Garlock

Correct.

It's a reduction in the transaction costs, and

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translates into a reduction in appropriate settlement

amounts -- expected settlement amounts.

discussion about the relationship between the settlement and

the different determinants?

works?

chart that we showed before where we showed where the

settlement ranges were that came out of -- these were for the

cases for which are the 95 percent of cases for which Garlock

has no perceivable trial risk associated with them.

Can you describe with reference to your previous

Sure.

Can you describe how the plan

What we have here is, this is a picture of the

Within those cases, as you recall, Garlock was avoiding

costs on average of about $65,000 leading to settlements on

average of about $37,000.

Under the plan of reorganization, those costs would be

reduced.

terms of the information regimes that are there, and

understanding what they would apply in terms of the cost based

on my analysis, it would be equivalent to basically reducing

the costs -- avoidable costs to $20,000.

to about a $45,000 savings in cost through the discovery and

litigation costs.

in light of discovery -- the information requirements that

need to be brought forward.

And we believe in terms of thinking about it in

So that's equivalent

Which I don't think is unreasonable at all

The impact of that should be a reduction in the

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settlements which as we know, the appropriate settlements for

that based on the modeling, that would be about $12,000

through the plan of reorganization instead of the amount which

was $37,000 as during the period of the 2000s when they had to

litigate to get that information, versus only 5- or $6,000 as

prevailed in 1990s when plaintiffs actually espoused that

information on their own.

the plan of reorganization as such?

So what are your estimated mesothelioma payments under

Well, the estimate of the payments under the plan of

reorganization, we believe for pending claims is less than

$60 million.

than $60 million.

inflation, would be approximately $260 million.

inflated the values here at an expected inflation as we did

with the future claims, giving a total of $320 million.

In this case not significantly less, but less

The future claims at two and a half percent
So we've

So here we've actually added inflation to the amount,

unlike some trusts which don't actually inflate the amount for

trusts.

Then if we basically use the same present value

calculation associated with this, it would be -- essentially

we estimate that the total amount required to make the

settlements, given the number of claims and the payments of

the trust, would be less than $220 million, pretty close to

that though.
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trust distribution procedures.

resolution procedures which would be the equivalent.

you describe the criteria -- the basic criteria under the CRP,

and the resolution alternatives that are offered to claimants?

this particular, we're going to -- there obviously has to be,

like the other trusts, the 524(g) trusts, the bankruptcy

trusts has done, requires medical evidence of pleural

The -- there's been testimony in this court about the

Right.

Garlock's plan has claims

Well, I mean, this slide describes them.

Could

So in

mesothelioma.

Again, we're going to require direct or indirect contact

with the Garlock asbestos-containing products.

contact with Garlock's products before January 1st, 1978.

then have, essentially, require that they be able to identify

product.

16
17

The options here are two.

Require
And

There's an expedited review

option and an individual review option.

Claimant having gone through the procedures and does not

wish to accept the settlement under either outcome, can go to

essentially a litigation outcome and try their claim in the

tort system.

have to have provided the information required for by the

trust.

how does it work?

But before they can emerge to go to that, they

What is the purpose of the expedited review option and

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that does not require -- requires less information to be

provided than the full individual review option.

modeled in many respects after something that's like the

Western MacArthur Trust which has a more -- a trust which

actually takes account of claimant characteristics.

some of the trusts which have a very simple scheduled amount,

and that's it, then you can go to individual review.

individual review option there is basically about, you know,

what's your -- which lawyer did you sue with, what your age

was and so own.

The expedited review option here is essentially an option

This doesn't account for that in any way.

It -- it's

So unlike

And the

This is a more

sophisticated approach but is modeled after Western MacArthur.

In fact, in some respects, it might even be a little bit

simpler, but it does have the recognition that within the

contact groups that Mr. Henshaw recognized, there's a more

likelihood of potential for risk, and more likelihood to be

deserving in some of those contact groups in terms of the role

that Garlock's gaskets play within the contact -- the asbestos

exposure within each one of the contact groups.

The table over here shows you essentially, the maximum

settlement amount that could be offered.

Then there is

essentially, an index that is described that is the --

essentially is calculated and is based on the diagnosis, age

of the (indiscernible), age of the individual, their life

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2840

status, their spouse and other dependents, the duration and

contact of exposure, and the state which they claim filed.

This is very much like you would do with the Western

MacArthur Trust, without the contact groups because of the

nature of their product that they had other requirements,

particular things like claim filing state, spouse, dependents

and life status are all aspects which came to be so the index

was modeled after that trust.

Okay.

I'm going to break a rule and I'm going to go

backwards but just for a moment.

When you were describing the claimant -- the criteria for

settlements, you described the requirement that there be

contact with Garlock's products before January 1 -- I'm back

on Slide 67 now.

basis for that criteria?

Garlock's products, so it's a legal basis.

there was first contact alleged after January 1, 1978?

I do not know that.

Okay.

settlement offer to a claimant with significant gasket

contact?

would work through and how the settlement amounts would work

January 1, 1978.

Would you describe the

I think this is when the warnings went on to the

Okay.

Right.

Do you know whether Garlock paid settlements where

Can you provide an example of expedited review

So this is -- essentially shows you how the index

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for an individual with expedited review.

He's a 64-year-Old

claimant who is alive at the time of his filing.

dependents.

he's in the state of Illinois.

give a settlement offer to that person based on that

information of approximately $94,000.

review settlement offer for a typical claim?

He has

He worked as a Navy pipefitter for 15 years, and

The index would calculate and

Can you then -- describe the example of an expedited

Well, a typical claimant would be less.

They would tend

to be older.

contact group, so their maximum amount would be less.

would be someone that comes from the State of California where

there's a significant number of claims come from.

have dependents.

and he's older.

about $21,000.

They would be less likely to be in the first

He is alive.

So this

He does

But he's in contact group two

So the settlement offer for this amount is

That's how the formula works.

There's essentially a

template, a calculator that can be used that you can plug

these amounts into and actually get the amounts out.

could use that calculator?

could essentially on the web site put the calculator, such

that an individual could plug in their characteristics and

know the amount they could get; both under the individual

When you say there's a calculator that can be used, who

Well, a claimant could use this.

You have the trust, you

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review and the expedited review.

So that they could

essentially figure out which is the better way they should

file their claim, based on the claimant characteristics --

Good.

-- as well as the other information.

individual review's going to require additional information

requirements.

settlement amount.

the individual review so that the vast majority of them, they

Because the

In many cases that would actually reduce the

The plan wants to encourage people to use

will get more money out of the expedited review.

actually not any different than the money in the 524(g) trust.

You can submit for the higher demands, put higher

administrative demands on the trust, you better have a higher

quality claim to be -- to make it worthwhile.

Which is

So both parties save money through the expedited review

process for the vast majority of claims.

describe the purpose of this option and how it worked?

account for the fact that occasionally through the litigation

there are individuals who assert that Garlock is either the

sole or the primary source of their exposure.

to be unique individuals.

expect to see Garlock owing a fairly large amount of money on

those cases, assuming that they actually meet those criteria.

Let's turn to the individual review option.

Would you

Well, this is an option that basically is tailored to

These are going

And if that is the case, you would

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As we've seen through some of the discussion through

Mr. Turlik and Mr. Magee, a number of the cases that were

presented gave the appearance of that.

Mr. Magee used was illusory, but in fact they turned out after

the fact not to be the case.

that would actually meet that criteria.

I think the term that

We're talking about the ones

So this plan -- this again has an index -- several sets

of indices.

It uses the same information that's in the

expedited review, but it also requires complete job and

exposure history, and the identification of other sources of

exposure, including settlements, claim trust, which the other

did not.

The other was a settlement.

So essentially, you don't have to provide the other

information, other than what you do currently to Garlock in

the settlement, which is assert the direct contact with

Garlock product, within the timeframe, provided the necessary

demographic occupation, and basic occupational information and

you can get a settlement offer out of it.

requires more of the complete job and exposure history.

Now, the potential is to get a lot more money.

maximum value for this category is two and a half million

dollars.

with strong economics, and other criteria.

24
25

Whereas this one

The

It takes a fairly young claimant here to get that,

But really what this amounts to is they don't have a lot

of alternative exposures to point to.

In which case that's

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where you expect to see Garlock would be likely if it was a

case such as that was taken to trial and win, Garlock would

have to pay a fairly significant amount.

would be a case where the Garlock share of the total

compensatory award would be high, based on the lack of other

exposures?

to see a very limited number of other exposures to it.

So going back to your liability estimation model, this

That's correct.

It would be one which you would expect

Can you describe an example of an individual review offer

to a claimant with significant gasket contact?

lot of work which is a gasket cutter, but they're not in the

presence of industrial -- insulation products, for which there

is, you know -- in this case is an individual of 64 has a life

status, he's alive at the time of filing.

He's a gasket cutter.

of Illinois.

a claim -- has a claim against Manville, because most of the

individuals would have a claim against Manville, except for --

I don't think we've seen somebody who wouldn't qualify as a

claim against Manville, but that's not to say it doesn't

happen eventually.

$1 million.

Right.

Okay.

So this would be the idealized person who does a

Has direct contact.

Has dependents.
He's in the State

Has no co-defendants, but it has basically filed

This individual here would get over

Can you describe an example of a -- I believe this

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is supposed to be an individual review settlement offer for a

typical claimant?

the person who was going to get 20 -- it's mislabeled on Slide

73.

Well, this is what would happen if you basically -- if

So it's essentially what the individual review offer

would be for the claimant who we showed before would have

gotten $21,000 as a typical claimant.

I've gone back to Slide 70, and this is the same

claimant?

Right.

So he's applied here under Slide 70, he's applied for

expedited review.

instead, you would expect that he would have, you know,

typically if he had to provide his exposure information, he

would have 32 -- excuse me, 13 co-defendants and 22 trust

claims as we described in the analysis.

Yeah.

This is the same claimant.

And here, if he applied for individual review

This person in this case would only get an offer of

$3,500.

Essentially he would definitely be an individual who

would go for the expedited review as he should.

and it should -- it's entitled, "Example Expedited Review

Settlement Offer For Typical Claimant".

Individual Review?

Okay.

So just to be clear, we're looking at Slide 73 now

It should be

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Correct.

So how did you estimate payments under the proposed plan?

Well, we used the information provided by the claimants

in the PIQ.

under the terms of the plan, so that -- and we created the

indices for these things.

like dependents, and likelihood of being alive from the data

that we had as well.

calculated for each one of them what would be the result of

the expedited review, the individual review, and what they

would expect they could get if they litigated the claim in

tort system with this information.

Again, in that process.

And so we valued them

We put in some estimates of things

We have the other information.

And we

Frankly, given what we have here, if they provide this

information, none of the claimants would wind up opting for

litigation, because their expected outcome having provided the

information, is less than what they would get under the

expedited or the individual review.

We then assign the individuals to whichever these

categories gave them the most money.

Most of them would take

the expedited review.

individual review.

of their title, their occupation would put them into one of

the lower contact group.

in terms of having more contact exposure than you would

expect.

A small number would take the

Those tend to be individuals who, by want

But their activity tends to put them

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So those are exactly the kind of individuals that you

would expect to see for individual review.

That is -- well,

they're individuals because of the way the contact group

maximum amounts are set would initially be scheduled lower

amounts, because most of the people in those groups would not

have the kind of contact.

But occasionally there are individuals within those

groups, because of what they're doing, they describe themself

as a laborer, for example.

Then when they write down what

they did, they actually worked -- as a laborer, they spent a

lot of time picking up gasket material, so...

for current mesothelioma claimants?

to be about $60 million.

did the aggregate analysis, we valuated the individual claims

based on the characteristics under the three options and

picked the one that was the most.

claims of the vast by taking the expedited review, which

shouldn't be too surprising, since 95 percent of the claimants

that we get, 96 percent of the claimants in the 2000s that got

paid, essentially have no prospects of liability -- no

liability likelihood for Garlock.

Okay.

And the model essentially has -- essentially takes

So what was your -- what is your estimate of the payments

We estimate that the payment, individual claimant again

Each one was evaluated -- the way we

And 97 percent of the

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account of claimant characteristics which would correlate with

liability, and hence higher -- those would have the best

claims would get the highest settlement amounts.

payments to future mesothelioma claims?

the two and a half percent inflation rate on the settlement

amounts.

using the 3 percent real discount rate, gives you -- less than

Right.

So, again, we use the -- as we describe, we use

Gives us the total nominal value of $260 million,

$160 million net present value.

11
12

Turning to Slide 76, could you describe your estimated

Again, we use the estimated expected offers under the

three options for each age in the contact group combination.

Again, because -- again, we don't have the individual

claimant characteristics for those.

More of them are actually

going to go in the direction -- the estimate is going to give

you more in the individual review than -- excuse me, the

expedited review than the individual because we don't have the

diversity of claimant characteristics estimated with them.

But I think that -- so the optimal choice is about

99 percent of future claimants would take the expedited

review.

Okay.

Yes, sir.

Would you describe, then summarize your conclusions

regarding settlement payments by contact group for current and

Slide 77 is a summary table?

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future claims?

shows you the settlement amounts that -- the maximum

settlement offer that's assigned for each one of the five

contact groups that we have, plus the individual review.

6
7
8
9

So, as we described, this part of the table right here

We're going to summarize across those groups, get a total

for those.
We have, essentially this shows the calculation of what
we got.

Within the first contact group we estimate that there

will be settlements that are approximately $100 million.

represent about -- just slightly under half of payments, and

they would be an average of around $49,000.

Each one of these numbers describes what each one of

those are.

of the group five claimants.

that you can get simply by being in that group.

They

And we have an amount here of $1,000 for each one

Essentially there's an amount

We have the individual review amounts here which we've

estimated as being for the -- about 1 percent of the total

overall.

value -- present value calculations.

here of 16,000.

than the numbers up here.

It only comes to about $2 million in total net

And it has an average

You'll note that that number is a lot less

That's because most of the claimants for this group,

essentially are individual review claimants that would come

out of here, because the individual review -- the amounts

Laura Andersen, RMR 704-350-7493

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1

here -- these are appropriate for most of the individuals

within this category.

occasionally individuals who by want of their -- by nature of

their occupations, their job duties instead of their

occupation description which would put them in here, should --

would be entitled to getting more and they would be the ones

who tended to go with the individual review.

8
9

But there are rarely individuals --

The overall average is approximately $20,000,

significantly above the amount that we have in the period of

1990s, somewhat below the most recent settlement average

resolution amounts in Garlock's -- certainly less than the

average payment amounts in the recent history.

talking about a very different value environment --

information environment here.

But we're

In total, this column adds up to $214 million in net

present value terms.

That leaves approximately $56 million for contingency and

trust administration.

The funding of the plan is $270 million.

By contingency I mean the fact that for the individual

review here, we have a small number of cases.

predicting any to go through litigation.

plan that would be extremely rare that would occur.

We are not

We expect under this

For the reasons that I describe in terms of valuing the

future claims with regard to individual review, it's quite

possible by the nature of the individual claim characteristics

Laura Andersen, RMR 704-350-7493

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1

that future claims would have more variation to them, and

there would be more individuals in here.

I wouldn't expect that to happen much, given the history

with the pending claims pool, but this amount should be more

than sufficient to cover that.

the neighborhood 10 to 15 percent -- 5 to 10 percent in terms

of trust administration costs, which would give you the total

of the $270 million.

Even counting for somewhere in

So what's your basis for describing the 5 to 10 percent

trust administration costs?

Basically we have just reports what trust administration costs

are from publicly available trusts.

relate to your liability estimate and your financial statement

estimate?

we did before.

significantly above the liability amount -- multiples of the

liability.

out of settlements where the plaintiffs are avowing their

exposures to asbestos products that they did in 1990s.

they're providing that information without -- without actually

describing it in a litigation setting.

That's -- I don't have a detailed understanding of that.

Okay.

How does your estimate of payments under the plan

So it fits in here in this perspective relative to what

It's $270 million net present value.

It's

It's above the amount that you would expect to get

Here

But it doesn't cost Garlock to get the information in the

Laura Andersen, RMR 704-350-7493

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2852

same way it does in the current tort environment, so that

means the amount should be -- is and should be materially

below the financial reporting range.

illustrated on this chart.

MR. CASSADA:

THE COURT:

MR. CASSADA:

THE COURT:

MR. CASSADA:

I want to introduce.

THE COURT:

That's what we've

May I have a --

Yes.
-- few moments?

Sure.
I also have a number of documents that

Okay.

(Pause.)

BY MR. CASSADA:

we had earlier about incidence, the future incidence that you

projected under the plan, and the basis for your projected

claimants by year.

Okay.

Describe how you determined that -- here we're looking at

Slide 58.

you project would actually have access to a trial in that

year?

Have access to a trial?

How many claimants do you project would have contact --

would establish or alleged contact with a Garlock -- Garlock's

Dr. Bates, I want to back you up to the discussion that

In focusing on the year 2011, how many claims do

Laura Andersen, RMR 704-350-7493

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1

products during the year taking 2011, for example?

how do I come up with that number?

Yes.

All right.

maybe you were asking that question.

That's a partial year.

That's because that's a partial year, so that's not what

you're asking.

So, I'm sorry.

You're asking the question of how many --

Precisely.
So the year here 2010 is low.

I thought

That's why I focused on 2011.

So what we have from the prior chart is, we have total

incidence of disease for -- expected disease for each one of

the contact groups.

Within the PIQ data, we received information about the

individuals who assert contact with each one of Garlock

products.

that contact group who asserted contact with the product.

That gave us percentage of total claimants within

So, for example, in claimant group number one, the number

may be 62 percent.

finger, it's in my report.

percent of individuals in the PIQ population.

I don't have the number at the tip of my

But that gives us essentially 62

We then took that percentage and applied it to the annual

amount in this figure here.

So the amount that you would get

in 2011, that would be associated with that contact group.

And so if we had, you know, 1,000 people in that group, and

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1

then we took 62 percent of them, we have 620 people.

the number of other parties whose products would be identified

in the typical claim against Garlock.

Yes.

-- the 22 --

Yes.

-- and 14.

information?

Thank you.

Now, you were talking about your estimate of

Would you describe where you obtained that

Well --

Or clarify that?

Clarify?

Yes.

I thought I had described it.

missed something, so...

Do you recall that --

So somebody thinks I

Well, there was a -- we have a claim file review that we

did.

claim files that were provided to us and interrogatory

responses.

called product sample.

product's review sample.

All right.

As well as we have PIQ information, and

And within those, we essentially created what we

So it's claimants who were within our

So these are essentially files which we believe to be

essentially correct from -- with regard to depositions,

interrogatories responses, and essentially the claim file

review that went on was looking for people who -- claimants

Laura Andersen, RMR 704-350-7493

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2855

who would identify both their products, the types of products

that they were exposed to, as well as either the brand or the

company name.

So for example, we could say insulation by Owens Corning

or they could say Kaylo, and we would know it was the same

thing.

But it's important they asserted contact with the product

which they could identify.

Okay.

Did you -- the source of that data, did you make

any determination with respect to whether that was -- data was

representative of claimants against Garlock?

that I have.

Well, I did, to the extent that I could within the data

I mean, at one level it's likely to be unrepresentative

in that it's likely to be more high-quality claims against

Garlock, because it's -- you know, those are the ones that are

more likely to have the complete claims.

It does come out of the PIQ provided data as well.

there were court-ordered samples of claim review files as

well.

means.

So those have less likely to that susceptible to that

I then compared that as well with the information that I

have historically from -- not fully recalling the full way --

I did this.

it.

I remember the exercise, as I do the details of

Comparing the number of claimants there, the relative age

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1

of the claimants, the number of exposures -- excuse me, the

number of parties that they would name, and so on.

appeared to be from the characteristics I could name -- could

identify to be similar in characteristics to one for which I

didn't have that information.

this, for those qualifications, satisfied with it being

representative.

8
9

They

So I was, for the purpose of

Moreover it's numbers that are considerably less than I

believe to be the exposure in fact, and considerably less than

the number of parties that are actually named.

So that if

there was in fact a more exhaustive discovery that was done

for the individuals, and we actually bring in information like

what their site exposure and their work history was, the kind

of analysis that we talked about could be done, I would expect

that number to actually go up if you knew more about the

individual and did a more exhaustive search.

So, for example, if the plaintiffs themselves were

deciding to move the litigation on to a new defendant and was

doing more work in that area, I suspect that that would

affect -- they would identify -- be able to identify more of

these exposures.

over the last 30, 40 years in coming up with the names of some

of the litigants and the defendants that they have at this

point.

In fact, along the process that they've done

Now you were able to establish the typical claimant would

Laura Andersen, RMR 704-350-7493

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1

identify contact with 36 claims.

How does that relate to the litigation experience that

you've described to some extent talking about the information

regimes and the difficulty getting claims information and the

problems described by Mr. Magee and Mr. Turlik?

the part of the plaintiffs.

plaintiffs -- or in this case it helps to consider the

plaintiff's law firm itself.

Well, that's the result of a more strategic behavior on

If you actually look at the

You can in fact get more money,

as I describe in the report, by targeting at individuals --

targeting individual defendants, than you can by essentially

trying to go after multiple defendants.

So it would cost more for the plaintiff's law firm to

develop a case against multiple defendants.

It would -- and

at the same time it would dilute the case.

It would lower the

likelihood of them getting trial outcome.

they are making the case for some of the defendants themselves

when they point the finger -- the plaintiff himself points the

finger at first one set of defendants then another set of

defendants.

confusing to a jury about who the potential target are -- what

the potential source is.

Because in fact

That raises the prospect of it being sort of more

You can have a number of defendants each saying, well

look, he admitted exposure to them, it's them.

saying no, it's them.

The other one

They may both get assigned, or may

Laura Andersen, RMR 704-350-7493

DIRECT - BATES
1

neither get assigned.

more complicated process.

2858

But it makes for a more confusing and

So I think it's their approach is as they have described

when they say it's the defendant's job in cases like this to

do the work of finding what the alternative exposures are.

Their job to do the job of finding the exposures to the

company they're suing.

target the litigation in that way.

I think it's in their interest to

You know, with regard to what I'm talking about here, in

terms of dividing it up with the relationship between that

versus my calculation of say 36 parties is, think about that

process actually taking place with a random draw from each of

those 36.

So, you know, we're going to target them, but we aren't

going to target everybody.

case if you target your litigation against one party, and

because of your strategic targeting you can get that party to

be responsible for 50 percent, and then do that for each one

of 36 parties.

in that.

they're targeted in that circumstance.

I mean, it's obviously not the

It's not that you have 18 times the liability

You have to take count of the likelihood that

So, whether you do the calculation the one way or the

other, both of them leads you to the overall conclusion that,

you know, to the way I've done it, which is to treat the

parties all symmetrically with regard to the litigation.

Laura Andersen, RMR 704-350-7493

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1

That's to put them in the same relative position so that they

aren't biased, vis-a-vis their position within the litigation

for the calculation of the liability, which is a legal

responsibility concept, which therefore I think that's

appropriate.

6
7

MR. CASSADA:

Your Honor, I have some exhibits.

THE COURT:

Yes.

BY MR. CASSADA:

handed you, Dr. Bates, a number of exhibits.

12
13

I'm going to get you to identify those.

You have -- I've

Can you first, identifying the exhibit number, identify

each exhibit.

In other words, identify each exhibit by exhibit number.

want to make sure I know what it is.

May

I approach the witness?

8
9

I think that's the right way to do it.

Just making sure I'm identifying the specific thing, I

Yes.

Okay.

So Exhibit No. GST-992, if I read this right, is the

paper we referenced in my report and I made reference to

earlier today, "An Economic Approach to Legal Procedure and

the Judicial Administration", by Richard A. Posner.

Exhibit GST-993, titled, "Selection of Disputes for

Litigation".

paper that I referenced in my direct testimony here today, a

paper dated from 1984.

By George L. Priest and Benjamin Klein.

Exhibit No. GST-1274.

Another

This is the 1996 paper by Lucian

Laura Andersen, RMR 704-350-7493

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1

Bebchuk -- B-E-B-C-H-U-K, that I referred to in my

presentation earlier today.

Exhibit No. GST-1320, I hope that's a zero, is the paper

by Rosenberg and Shavell -- S-H-A-V-E-L-L -- from 1986 -- '85,

excuse me, that I referred to earlier today.

Exhibit GST-996 is a copy of my affirmative report in

this matter.

I would like to point out that on pages -- in

the appendix on pages 130, 131, 132, somehow the wonders of

Microsoft Word have duplicated some of the lines of the table

repeatedly.

originally, so just make sure to note that within the report.

I think it's in the way it was actually produced

GST-1000.

This is the expert report of Jeffrey F. Brown,

dated February 15th, 2013, referenced in my presentation here

today.

you mention it in your report?

And you talked about that during your testimony today and

Correct, in both.
And finally, if this is the last one, is document

GST-1305.

It is the memorandum that I received from Robinson,

Bradshaw and Hinson dated February 5th, 2013, regarding the

apportionment of damages in asbestos cases in 50 states, the

District of Columbia and under Admiralty Law.

used and made reference to here today in talking about

apportionment of the states made reference to in my work and

in my report.

It's what I

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1

MR. CASSADA:

Your Honor, we move admission of those

exhibits, that's GST-992, 993, 1274, 1320, 996, 1000, and

1305.

MR. INSELBUCH:

Your Honor, with respect to the

first four, these are articles that appear in publications.

We have no problem with the debtor supplying the copies of

these for your convenience, but they really are not

evidentiary matters and shouldn't be accepted into evidence.

9
10

THE COURT:

Well, I'll admit them for what they are.

They are articles.

MR. INSELBUCH:

The next exhibit is GST-996, which

is Dr. Bates' report.

We would urge that that be accepted

under the basis we previously accepted other reports --

THE COURT:

MR. INSELBUCH:

report of Jeffrey Brown.

18
19

We'll do that on the basis.

-- that also with respect to the

Yes.
MR. CASSADA:

We move both of those for

demonstrative and Rule 104 purposes.

THE COURT:

All right.

MR. INSELBUCH:

Now, GST-1305 is a memorandum from

Robinson, Bradshaw to Mr. Bates.

This we object to.

material that if they want to write a brief, they can do that,

but he shouldn't be a vehicle for debtors' counsel supplying

you with evidence.

Laura Andersen, RMR 704-350-7493

This is

2862

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1
2

THE COURT:

I'll admit it, understanding what it is.

And it's something that he looked at and relied on.

MR. CASSADA:

And just for purposes of clarifying

the record, Exhibit 1305, Dr. Bates, is that something you

relied on in connection with your report and opinions in this

case?

THE WITNESS:

MR. INSELBUCH:

MR. CASSADA:

THE COURT:

The mere fact that he relied on

something doesn't put it into evidence.

Yes.

I understand.

But we'll have it so you-all will have

and we'll all have what he looked at.

MR. CASSADA:

Your Honor, we have on our list

documents that have been filed in the court, and that's

Garlock's Proposed Plan of Reorganization and Proposed Claims

Resolution Procedures, which Dr. Bates had reviewed and

evaluated.

move to admit those.

THE COURT:

20
21

And I don't have those numbers right now, but we

That's all right.

We'll accept those as

being documents that are in the case file.

MR. CASSADA:

And finally, Your Honor, we're going

to offer for demonstrative purposes the PowerPoint

presentation that Dr. Bates used during his testimony today.

And that would be demonstrative Exhibit GST-805 (sic).

MR. INSELBUCH:

We have no objection to that if we

Laura Andersen, RMR 704-350-7493

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1

could have it by 7:00 tonight.

MR. CASSADA:

THE COURT:

(Debtors' Exhibit No. 8005 was received into

You'll have it.

I'm sorry 8005.

Okay.

evidence.)

MR. CASSADA:

Then I've marked as GST-8006,

demonstrative exhibit, Dr. Bates' drawing today when he was

showing the settlement process and the interaction of the

likelihood --

THE COURT:

MR. INSELBUCH:

THE COURT:

MR. CASSADA:

(Debtors' Exhibits No. 992, 993, 996, 1000, 1274,

We don't need a copy of that.

Okay.
I'll mark that as Exhibit 8006.

1305, 1320 and 8006 were received into evidence.)

16
17

Okay.

MR. CASSADA:

Thank you, Your Honor.

witness.

THE COURT:

good time to pick up the pass.

20
21
22

We pass the

All right.

MR. INSELBUCH:

I think Monday would be a

Could we talk a little bit about

scheduling?
THE COURT:

Yeah.

Let me just say what seems to me

we ought to continue with Dr. Bates, and then what you said

you-all had to finish Mr. Magee and that be your case.

try to do that Monday.

Laura Andersen, RMR 704-350-7493

Let's

2864
1

MR. SWETT:

Your Honor.

THE COURT:

Yes, sir.

MR. SWETT:

We have one witness, who at last report

can only be here on Monday.

THE COURT:

Okay.

MR. SWETT:

It will probably be a matter of two

hours, two and a half hour examination.

we don't have to, but I may need to ask Mr. Cassada for an

accommodation in presenting that witness on Monday afternoon.

THE COURT:

So I won't do this if

In that case we'll just slip Mr. Magee,

I guess, till Tuesday and let you-all finish.

I'm not sure if

you've been counting the days.

MR. SWETT:

They are dwindling.

THE COURT:

We will give you all the days that

you're entitled to.

rebuttal give Garlock what time's left; understanding that we

really have the flexibility only to lop over into Monday of

next week.

MR. SWETT:

We'll pick up and do those and do -- for

Your Honor, did I understand you earlier

to say that you were tied up on the Monday following the third

week; is that correct?

22
23
24
25

THE COURT:

We can move that, I discovered at lunch.

We had scheduled some other hearings, because that was -MR. SWETT:

Before we lock that in concrete, I need

to consult with my science lawyers who are dispersed around

Laura Andersen, RMR 704-350-7493

2865
1

the country.

THE COURT:

Okay.

MR. SWETT:

But I can confirm that to you on Monday.

THE COURT:

Okay.

That would be my preference to go

ahead and finish, rather than break for a week or two or

whatever it has to be and then come back.

be a bad thing to have to do.

come back.

MR. SWETT:

I think that would

So hopefully they'll be able to

That last issue would be in previous

discussions, Mr. Clodfelter wanted to bring Dr. Heckman

(phonetic) and Dr. Peterson was to be provided an opportunity

to respond to whatever criticisms were leveled at him in

rebuttal.

not -- might waive it depending upon what the rebuttal was.

15
16

And we would ask for that privilege.

THE COURT:

Okay.

We might

We'll do the best we can.

You

all --

MR. GUY:

We have the same issue.

THE COURT:

We'll try to give everybody all the time

they're entitled to, all the time you need.

trial practice seminar somebody said never ask a question more

than eight words in it, and we might have to invoke that and

an eight-word answer.

But we'll try to get this in.

THE WITNESS:

THE COURT:

Remembering in a

Sorry, Your Honor.

At any rate, well -- we'll do the best

we can.
Laura Andersen, RMR 704-350-7493

2866
1

MR. CASSADA:

Your Honor, it does appear that we're

running out of days, and we have witnesses -- I suppose what

we'll do is we'll submit expert reports for witnesses we don't

have an opportunity to call and summaries of testimony that we

would have offered.

THE COURT:

We may just have to have you do a

proffer and a proffer of a rebuttal or whatever you want to

do.

9
10
11

MR. SWETT:

But in the absence of cross-examination,

it would not be proper to receive those into evidence.

THE COURT:

I'm not going to consider them, we'll

put them there and it will be part of the record for somebody

else to look at.

MR. CASSADA:

We had the other kind of lingering

issue that you had reserved an opportunity for the committee

and the FCR to file Daubert motions.

17
18
19

THE COURT:

We'll let them do that after the close

of evidence.
MR. CASSADA:

You may recall that you had mentioned

giving us an opportunity to offer affidavits to cure any

problems that we could have addressed had we had those motions

beforehand.

THE COURT:

Yeah.

MR. SWETT:

Finally, Your Honor, I've been asked by

Okay.

the science lawyers to press the question of what the reduced

Laura Andersen, RMR 704-350-7493

2867
1

roster of science witnesses that they ought to prepare for.

And I understood that that information would be available

sometime before now.

this evening.

But certainly would like to have that

THE COURT:

All right.

MR. CASSADA:

That -- I think we can provide a

preliminary number there.

time we have for rebuttal, which is somewhat up in the air.

But we'll have to prioritize the witnesses that we'll call and

10
11
12

That is going to depend on how much

I believe we can give notice of those -THE COURT:

I'll ask you to do that, and do that as

quickly as you can.

MR. CASSADA:

THE COURT:

MR. CASSADA:

THE COURT:

MR. CASSADA:

(The court was in recess for the day at 5:35 p.m.)

19
20
21
22
23

Okay.

Okay.
Thank you, Your Honor.

All right.
Have a nice weekend.

* * * * * *
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NORTH CAROLINA
CERTIFICATE OF REPORTER
I, Laura Andersen, Official Court
that the foregoing transcript is a true and
of the proceedings taken and transcribed by
my ability.
Dated this the 3rd day of August,

Reporter, certify
correct transcript
me to the best of
2013.

24
25

s/Laura Andersen
Laura Andersen, RMR
Official Court Reporter

Laura Andersen, RMR 704-350-7493

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