November 11, 2002

Bubble Wrap Under Attack

By: Emily Sedgwick

The latest asbestos boondoggle involves the Saddle Brook, New Jersey inventor of Bubble Wrap and an activist judge whose specialty is fortune-telling. Were this a Tom Wolfe novel, a promising young Congressman might champion decent reform and win, but alas, in real life we are stuck in Senate limbo.

Sealed Air Corp., of Bubble Wrap fame and Fortune 500 success, was scheduled to face a Newark hearing September 30 brought in connection to hundreds of thousands of asbestos claims. The hearing is postponed for the moment, but the case clarifies why Congress should enact common-sense reforms to protect real victims and discourage frivolous lawsuits.

The glut of asbestos cases vastly worsened a few years ago, but began in the 1980s when the New Jersey and Louisiana Supreme Courts ruled that companies are liable for asbestos-related injuries even if a company’s relationship to an asbestos producer is peripheral. Since 1982, over 60 companies have filed for bankruptcy in response to the burden of asbestos litigation and total settlements have reached $250 billion.

One of those bankrupted companies, W.R. Grace & Co., was experiencing a manageable 20-year stream of asbestos claims but in 2001, a 400 per cent explosion of new claims forced Grace to file for bankruptcy protection. The claims were filed against Grace for the asbestos-related activities of a company division.

Sealed Air bought a different division from Grace, called Cryovac, in 1998 for $4.9 billion in cash and stock. The transaction was described by one analyst as “a match made in heaven.” The acquisition of Cryovac allowed Sealed Air to expand its food packaging business to produce shrink wrap, trays and absorbent pads for clients like Tyson Foods.

Attorneys seeking damages from Sealed Air argue that the transfer of Cryovac to Sealed Air left Grace insolvent because Cryovac accounted for 60 per cent of Grace’s 1998 revenues. But expert reviews at the time of the complicated, although common, transfer determined that Grace was solvent by a wide margin. Nonetheless, U.S. District Judge Alfred Wolin ruled last July that the benefit of hindsight–including the barrage of new claims between 1998 and 2001–was permissible evidence of Grace’s insolvency at the time of the 1998 Cryovac transfer. In 1998, neither Sealed Air nor Grace employed a fortune teller who could have foreseen that four-fold influx of new claims.

Supreme Court justices have asked Congress twice to reform the regulations that govern asbestos litigation. Justice David Souter called the quantity of asbestos claims “elephantine” and lamented that the problem “defies customary judicial administration and calls for national legislation.”

But in over two years and after scores of bankruptcies and millions in taxpayers-funded resources, the Democratically-controlled Senate has only managed to conduct one oversight hearing.

Republicans in the House have shown the fortitude to address the asbestos litigation reform issue, however, and proposed the only solution on the table that would help end the most unethical and abusive litigation saga in U.S. history.

In response to asbestos lawyers’ tactics and imminent bankruptcies, the House Judiciary Committee passed H.R. 1283 in July of 2000. This comprehensive reform was based on the premise that sick individuals are entitled to immediate and full compensation, while other potential exposure victims must wait to sue until they become sick. Additionally, the defendants are responsible for providing compensation, not taxpayers.

In retaliation, asbestos lawyers raised millions for the Democratic National Committee. That money was used to target Republican Senators and Representatives with attack ads in the 2000 elections and to threaten any company that supported reform with thousands of bogus asbestos lawsuits.

Sensible reform wouldn’t cost taxpayers a dime. Comprehensive action that protects the sick and preserves the rights of future victims would go a long way towards creating a reasonable legal environment. Other ideas include requiring individual trials rather than broad, class-action suits, and requiring suits to be filed where plaintiffs reside or where they were injured.

In short, Congress should end the trial lawyers’ windfall and Judge Wolin’s hindsight requirement by enacting reform legislation that will serve the injured and productive companies like Sealed Air.