Loophole for Asbestos Defendants?
Just when you thought you had seen it all, asbestos defendants come up with a new scheme for off-loading asbestos liabilities. Last year the U.S. multinational Honeywell International Inc. lost $220 million due, in some part, to asbestos-related lawsuits against its Bendix friction materials business. Asbestos was used to make brakes at Bendix factories around the world; it is still being used at Bendix factories in Asia. Since 1982, Bendix has settled 53,000 asbestos claims, averaging $1,000 each; there are 47,000 more asbestos-related claims pending. With a myriad of other interests and a predominant international status – it is one of 30 stocks that make up the Dow Jones Industrial Average – Honeywell just doesn’t need this grief. What to do?
A bizarre solution has been found which is breathtaking in its audacity: pass these claims to a company already enjoying judicial protection against asbestos lawsuits. On January 30, 2003, it was announced that Honeywell had signed a twenty-one page letter of intent with the Federal Mogul Corporation (FM), the Automotives Group which bought UK Asbestos Giant T&N Ltd. In a landmark deal, Honeywell is "selling" the global operations of Bendix, with the exception of certain U.S.-based assets, to FM in return for FM assuming all of Bendix’s asbestos liabilities. The headline of the Press Release on the Honeywell website1 says it all: "Federal-Mogul to Acquire Honeywell’s Bendix Friction Materials Business in Exchange for Bankruptcy Court Protection Against Asbestos Liabilities." FM Chairman and CEO Frank Macher says: "This acquisition represents a unique way, given our Chapter 11 status, to grow our core product base and position Federal-Mogul to emerge from its bankruptcy proceedings a stronger company."
The letter of intent specifies that the Bendix companies which will be sold by Honeywell include those:
"in France, Germany, Italy, the Czech Republic, Spain, Turkey, the Netherlands, Portugal, China, Brazil and the United Kingdom and Honeywell’s joint venture interests (the ‘Asian Joint Venture Interests’) in FMP Group (Australia) Pty. Ltd. (formerly Bendix Mintex Pty. Ltd.), FMP Group Pty. Ltd. (formerly Bendix Mintex Pacific Pty. Ltd.), FMP Automotive (Malaysia) Sdn. Bhd. (formerly Don Brake (Malaysia) Sdn. Bhd.), FMP (Thailand) Ltd. (formerly Bendix (Thailand) Ltd.), FMP Distribution Co. Ltd. and their respective subsidiaries (the ‘Asian Joint Ventures’)."
It seems that FM has little to lose by taking on the asbestos liabilities of the Bendix brakes parts business. Due to its Chapter 11 status, thousands of asbestos claims against FM are frozen. It appears that if this deal proceeds, claims for asbestos injuries will no longer be possible against Bendix or Honeywell; all future lawsuits, including those from non-U.S. litigants, will be brought against a paralysed company, Federal Mogul, instead of the still viable Honeywell group. A U.S. lawyer, who represents asbestos plaintiffs, condemned this scheme: "It’s just appalling. It’s just a perversion of the whole system." He promised that claimants would fight these proposals.
The deal will only proceed when:
the Court has approved the Materials Plan of Reorganization establishing Materials 524(g) Trust;
Honeywell cedes rights and benefits from Bendix insurance policies for Friction Asbestos Liabilities to Materials 524(g) Trust;
the Court has entered a permanent and nonappealable injunction prohibiting legal actions from U.S. and other claimants against Honeywell or any of its affiliates for Friction Asbestos Liabilities;
approval of the arrangement by the boards of Honeywell and Federal Mogul is given;
"confirmation (is received) that Honeywell and its affiliates have ceased worldwide the manufacturing, sale and distribution of any products containing asbestos;"
"the approval, consent or clearance of the European Commission pursuant to Council Regulation (EEC) No. 4064/89, as amended, and approval, consent or clearance of any other governmental authorities whose approval, consent or clearance the parties reasonably believe is necessary, shall have been obtained;"
it has been ascertained that there is an "absence of any injunctions or governmental proceedings prohibiting or challenging the transaction;"
"the required consultation by Honeywell with its European Works Council and any other works council consultation processes that may be applicable outside the United States" is completed.
As soon as the letter of intent was executed, Honeywell and FM began work on a temporary restraining order designed to stop "present and future claimants from asserting and further prosecuting Friction Asbestos Liabilities against Honeywell or against any of its affiliates in respect of the Friction Business in the United States pending the establishment of the Materials 542(g) Trust and the entry of a Permanent Injunction…" If/when this injunction is obtained, the legal status of Bendix asbestos claimants will match that of tens of thousands of T&N plaintiffs, currently out in the cold, wondering if they will receive justice or a few cents on the dollar.
February 8, 2003
1Honeywell website accessed on Feb. 8, 2003.