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On a bright morning in 1998, Maura Abeln Smith was in her office at Owens Corning when yet another phone call came from a lawyer defending yet another of Smith’s asbestos cases. After just four months on the job as Owens Corning’s general counsel, Smith had plenty of things to worry about. But she didn’t think this case was one of them. The Toledo-based manufacturer of building materials had never lost in Jefferson County, Miss., where the case was being tried — despite the pro-plaintiff leanings of the jurors in that poor, rural area. This made the lawyer’s news all the more shocking. The jury had awarded a whopping $50 million in compensatory damages against Owens Corning and several other defendant companies that had made or used asbestos in their products. Owens Corning owed a hefty $27 million of that award. Smith decided to settle — quickly — before the punitive bomb could drop. And as she was hanging up, Smith says, “I realized that if it could happen there, it could happen in Timbuktu. We were in trouble.” It was up to her to find a way out. So she launched a settlement campaign unlike any that corporate America had seen before. To the applause of both plaintiffs’ lawyers and company brass, Smith barnstormed the country for a year, traveling and negotiating up to seven days a week, looking to settle every one of Owens Corning’s 270,000 outstanding asbestos-related cases. It almost worked, says Smith, proudly. But it didn’t. Smith wasn’t able to convince every last plaintiff to settle. Litigation was draining the company, and it simply couldn’t afford another Jefferson County-like verdict. On Oct. 5, 2000, Owens Corning filed for Chapter 11 bankruptcy protection. The company’s stock nosedived, taking employee morale with it. Relations with plaintiffs counsel cooled. But the bankruptcy did put on hold the remaining 36,000 cases as well as all future asbestos claims, giving Smith some time to rescue the company. BAD TIMES Sixty-year-old Owens Corning — famous for using the Pink Panther cartoon as its marketing mascot — is one of the world’s top makers of fiberglass and composite materials. Although best known now for selling fiberglass insulation, it manufactures everything from roofing materials and vinyl siding to the composites used in the automotive, electronics, and telecommunications industries. The company continues to diversify. But its bottom line keeps getting dragged down by liabilities stemming from the asbestos products it once manufactured. From 1999 to 2000 profits dropped by $465 million — about 270 percent — largely because of asbestos. Owens Corning’s stock, in the mid-$40s in early 2000, had fallen to under $2 at press time. It may take another several years before the company can emerge from Chapter 11. And how healthy the born-again company will be depends largely on Smith — now chief restructuring officer as well as general counsel. Sitting at a table outside her office this June and glancing occasionally at Toledo’s Maumee River flowing wide and murky below, Smith, 45, said confidently, “We’ve been through the worst.” She should hope so, because the worst has been pretty bad — and not just for Owens Corning, but also for most of the building materials industry. In the last 18 months, eight companies have filed for bankruptcy protection, blaming asbestos litigation for their woes. That’s almost a third of the total number of asbestos-related bankruptcies since 1982. Owens Corning, with sales of $5 billion in 2000, and 20,000 employees and 120 plants worldwide, is the largest and best-known of these companies to go Chapter 11. But most of the others are also long-established blue-chip businesses. They include Armstrong World Industries Inc. (the nation’s largest vinyl flooring company); Pittsburgh Corning Corporation; W. R. Grace & Co., (made infamous by the book and film “A Civil Action”); and USG Corporation (America’s largest manufacturer of drywall). Asbestos claims have forced still more companies to the edge of financial failure, auto parts maker Federal-Mogul Corp. among them. THE MONSTER TORT For much of the 20th century, asbestos (the fiber created when rocks containing asbestiform minerals are mined and crushed) was considered something of a miracle because of its imperviousness to fire. Up to the mid-1970s, it was used to insulate boilers, furnaces, and pipes, as well as to make brake linings for cars, roof shingles and floor tiles. But the price of that miracle would turn out to be devastating. Asbestos fibers, when inhaled, cause such diseases as mesothelioma (a type of cancer) and asbestosis (lung scarring). Lawsuits seeking to hold manufacturers of asbestos-containing products liable for this damage were big news in the 1970s and into the 1980s. That’s when former factory workers first started winning huge awards. Then the media and many trial lawyers moved on to freshly discovered disasters and newly filed mass torts: the Dalkon shield, breast implants, tobacco and fen-phen. But asbestos litigation never went away. These days, what Smith says amounts to a second generation of plaintiffs’ lawyers file about 40,000 cases a year, targeting an ever-widening range of defendants. Industry officials say that more than 1,200 companies, from a cross-section of American industries, have been drawn into asbestos litigation. That number is expected to grow. “Certain companies escaped their share of asbestos liability for a generation,” says plaintiffs’ lawyer John Cooney of Chicago’s Cooney and Conway, who chairs the Owens Corning asbestos claimants’ committee. “But the companies that blocked for them aren’t around anymore. They’re in Chapter 11.” Companies in the steel, oil, and power industries had better be ready. “There are companies out there that consider themselves peripheral,” warns Cooney. “But if they were making asbestos-containing materials, they’re not peripheral.” Although asbestos has not been used since the mid-1970s, insurance experts expect claims to keep rolling in until about 2050, when the last cases of asbestos-related diseases should reveal themselves. By then, according to insurance industry analyst Risk International Services Inc., corporate America’s tab is expected to hit $200 billion. There has never been, and may never be again, a tort like it. In other words, it’s just the kind of challenge a truly ambitious lawyer would tackle. General counsel rarely get cast in the role of corporate savior. Rarer still is a woman handed the mask and cape. Then again, someone like Maura Abeln Smith does not come along often: Rhodes scholar; alum of the famed in-house department at General Electric Company; veteran defender against mass tort (breast implant) litigation. She’s tried to have it all: marriage, children, and a top-tier corporate career. And she’s the first to say that sometimes she’s had to sacrifice her personal life to do it. “Life is full of tradeoffs, and life is tough,” Smith says, smiling. Smith unabashedly says she wants, someday soon, to reach the top: to be a CEO. But that goal, she knows, depends a lot on how well she helps Owens Corning climb out of Chapter 11. PLAN A: HARDBALL Johns Manville Corporation may be the most famous among asbestos-related bankruptcies. It was the biggest company to fall in the early 1980s, during the first wave of Chapter 11 filings that also took down building materials manufacturers UNR Industries Inc., and Amatex Inc. Almost from the start, though, trial lawyers targeted Owens Corning because between 1958 and 1972 it made Kaylo, an asbestos-containing insulation for pipes. By the mid-1980s the Midwestern company had tens of thousands of asbestos-related cases on its docket. Owens Corning’s response was to litigate to the death — which was literally the case for many plaintiffs. The company used an argument that would become common in mass tort and environmental cases: Asbestos was perfectly legal at the time it was used (the federal government was its biggest user); the company didn’t know how dangerous it was; it shouldn’t be held liable for illnesses it didn’t know would occur. Owens Corning had an added defense — one that would help make mass tort history. It was often impossible to know exactly which company’s building material had made a particular plaintiff ill. Many plaintiffs worked in several factories for different employers during their careers. And they were exposed to asbestos-containing products made by still other companies. Plaintiffs’ lawyers tried to get around this problem by suing several companies at once on behalf of each plaintiff. The asbestos companies figured that juries would never go for the novel concept of joint and several liability. And for a while, the juries didn’t. But as more people sickened, and more documents surfaced showing that asbestos companies knew as early as the 1930s that the fiber was dangerous — but chose to expose workers anyway — the plaintiffs started winning. Relations between the increasingly successful trial lawyers and the increasingly intransigent asbestos companies grew nasty. The losses, coupled with the economic downturn in the early ’90s, helped create a second round of asbestos-related bankruptcies. More insulation and materials manufacturing companies went Chapter 11: UNARCO; Standard Asbestos; Celotex Corporation; Raymark Industries Inc.; and National Gypsum Company. Owens Corning was still standing at the beginning of the decade, and still fighting asbestos claims, but it was hurting. The board hired GE Plastics chief executive Glen Hiner to deliver some corporate CPR. When he arrived in 1992, Owens Corning’s sales were stuck at about $2.5 billion. Hiner’s goal: for sales to reach $5 billion by 2000. In addition, the stock price was languishing in the low $20s. During Hiner’s first five years, it slowly climbed to the high $40s. But asbestos litigation costs — 69,000 cases were filed against Owens Corning in 1997 — kept mounting. By early 1997, Owens Corning had paid more than $3 billion in asbestos verdicts. The building materials market was in a slump. Owens Corning’s stock price was under pressure. The chief financial officer, chief legal officer, and director of human resources all moved on. But their departures seemed the least of the company’s problems. Attempts to settle asbestos claims in one swoop failed. In 1997 the U.S. Supreme Court threw out a class action settlement plan devised in part by Smith’s predecessor, Christopher Campbell. The court took issue with the plan because it left out future claimants. Congress meanwhile failed to adopt a global tobacco settlement plan with an amendment that would have created a $40 billion Big Tobacco-funded trust for asbestos victims. (Asbestos-plagued companies claim that smoking greatly increases the risk of asbestos-related illness; for years they’ve been trying to get the tobacco companies to help pay asbestos verdicts.) Hiner needed a co-pilot to avoid a crash. His first thought, he says, was to call his former general counsel at GE Plastics: Maura Smith. Hiner had brought Smith to GE in 1991, then worked with her for a year before he went to Owens Corning. “She had matured quite a bit at GE,” says Hiner. “She had gained a lot of exposure to outside lawyers and how to work with them. Maura was also unique in her understanding and knowledge of economics.” Smith didn’t hesitate. “They were looking for someone to come in and be a player and be creative,” she says. “It’s attractive to any professional to be needed.” It’s also attractive to be paid well: In 2000 she earned $1.6 million in salary and bonuses. THE PERFECT FIT Smith certainly could do the math. She’d studied economics, first at Vassar College, then at Oxford University, which she attended on a Rhodes scholarship in 1977 — the first year women were awarded them. A full scholarship to University of Miami Law School brought her to Florida, where she started the complicated balancing act between career and family that has defined her life. In 1981 she married one of her professors. After law school, Smith stayed in Miami as an associate and then a partner at Steel Hector & Davis. In 1987 Chicago-based Baker & McKenzie convinced her to open its Miami office, where she practiced banking law, gaining insight into deal structuring — and how hard it was to be a working mother. By that time she had a young son and daughter, and there was a perception at law firms, she says, that women, especially mothers, did not take their careers seriously. Smith recalls, “Once you went off on the mommy track, you were pretty much done.” She had to work extra hard to stay in the mainstream — especially after 1990, by which time she was a divorced, working mother. Hiring top-notch, full-time childcare is the only way, Smith says, to have children while breaking through the glass ceiling. After a few years of law firm life, Smith set her sights on moving in-house. Benjamin Heineman Jr., GE’s general counsel, was then making a name for himself by luring top-notch law firm partners like Smith into the corporate world. At GE Plastics in the mid-1990s, Smith plunged into the male-dominated building materials business. She ran a department of 30 lawyers, while traveling constantly and internationally. “I had two round-the-clock sitters at this point and another person on backup for travel emergencies,” Smith recalls. It also was at GE that Smith first encountered a mass tort close-up and personal. GE Plastics’ silicone division produced the raw material sold to breast implant manufacturers. When the implant litigation exploded — modeled largely on asbestos suits and filed by many of the same plaintiffs’ lawyers — GE Plastics was a collateral defendant. Smith got a taste of what her life would become. She also learned how to cultivate plaintiffs’ lawyers. PLAN B: SETTLE! When Smith got to Owens Corning in February 1998, the company’s relationship with the plaintiffs’ bar, says Hiner, was “at best characterized as adversarial.” Jury verdicts were getting bigger and bigger, and still, asbestos companies refused to admit their culpability. “There was very little trust,” Hiner admits. Smith changed that, in part because she empathized with the asbestos plaintiffs and their families. Smith grew up in Reading, Pa., the daughter of a foreman in a copper tubing plant. Each night her dad came home coated in copper dust. In 1986 he died of emphysema. Smith believes that there may have been a connection between his work and his illness. Smith’s sensitivity showed, says Cooney, whose firm represents thousands of Midwestern asbestos victims with cases against Owens Corning: “She’s tenacious and straightforward. And above all, whether the news is good, bad, or indifferent, she’s honest.” But the news only seemed to be bad for Owens Corning. Juries were merciless, and Smith says: “Everybody at the company realized we had to do something different.” Smith analyzed the company’s books, and decided that Owens Corning could successfully manage its cash flow and future litigation by settling about a third of the 200,000 cases outstanding — not in a class action format, but through agreements with sets of plaintiffs. The rest of the cases, she decided, would be litigated. Then came the Jefferson County verdict. And, she says, the realization hit her: “I was wrong.” A few more $50 million verdicts like that, and Owens Corning would be in desperate shape. Still she thought she was on the right track. So she convinced her bosses to let her try something more radical: publicly acknowledge the scope of the problem and take some measure of responsibility for it. This would be a first among the asbestos defendants. But it was necessary for her new plan — to wipe the docket clean by settling not just a third of the outstanding cases, but all of them. The company set aside $2 billion to pay claims during the next five years through an administrative process completely outside the court system. Cooney credits Smith with opening Owens Corning’s eyes: “It was the first companywide recognition of the seriousness of the problem and understanding of the cases against them.” For years most companies tried to ignore their asbestos liability, he adds. After Hiner gave Smith the go-ahead, she kicked into warp speed, traveling the country and pitching her national settlement plan to top plaintiffs’ counsel. It had been hard enough getting topnotch lawyers to come and work for her in Toledo. Now Smith was forced to ask her 18 staffers to work 14-hour days. Also on constant call were her corporate specialist Jan Baker at Skadden, Arps, Slate, Meagher & Flom in New York; regulatory expert Carolyn Williams at Williams & Connolly in Washington; and asbestos defense veteran Roger Podesta at New York’s Debevoise & Plimpton in New York. Her kids by then were teen-agers, so there was no need for round-the-clock babysitters. But, ever the multitasker, Smith managed in the midst of the craziness to meet and marry her fourth husband, Steven Smith, a musician now pursuing a degree in advanced economics. “The marriage preserved my sanity at a time of chaos,” says Smith. “He is a stable, decent man.” PLAN C: BANKRUPTCY New York plaintiffs’ lawyer Perry Weitz was the first of 80 attorneys to come aboard Smith’s settlement bus. Dallas asbestos litigation pioneer Fred Baron would be the last. Owens Corning’s national settlement plan managed to wrap up a total of 240,000 cases with 80 plaintiffs’ firms for nearly $2 billion. Only about 36,000 cases remained when the plan ran out of steam. “We really made a huge dent in our liability,” says Smith. “Our heart was in it, but it didn’t have enough teeth to get to those who really wanted to go to trial. You could lose $20 million on a handful of individuals in one trial setting.” Plaintiffs’ counsel Cooney says that, while he was “very disappointed” by the bankruptcy filing, he didn’t feel as though he’d been misled. Owens Corning had just waited too long to admit culpability. “They had remarkable success getting us to the table. Had they done it a few years earlier,” says Cooney, “it would be studied for years to come in business schools.” Bankruptcy defense lawyers also laud Smith’s initiative. “It was admirable for Owens Corning to try to settle all their asbestos claims, and I’m personally sorry it didn’t work,” says Janice Grubin, a New York bankruptcy lawyer who co-chairs the American Bankruptcy Institute’s mass torts task force. Says Smith: “In the end, we ran out of alternatives. It was either stay the course and try to outrun the litigation or file” for Chapter 11. The board of directors voted to file. All pending litigation was stayed. But Owens Corning had already paid a total of $5 billion in damages on $100 million worth of insulation sold between 1958 and 1972. “There is no way we are responsible for all that illness,” says Smith, ever the advocate, balking at the price of joint and several liability. Smith is counting every penny because Owens Corning is now setting up a trust to pay remaining and future asbestos claims. Federal bankruptcy law says that the trust must contain a minimum of 51 percent of the value of the company; Owens Corning has total assets of about $6 billion, so its trust, if created today, would be worth at least $3 billion. But the trust will not start paying claims until Owens Corning emerges from bankruptcy. And a 1994 change in bankruptcy law stops plaintiffs from filing new claims against a reorganized company; they must be filed against the trust. In the future, Cooney says, companies should follow Owens Corning’s example: “Any other approach is a slow march to Chapter 11.” He should know. Cooney also sits on the claimants’ committees for Armstrong, W.R. Grace, and USG, all of which dominoed into bankruptcy after Owens Corning. But many mass tort and bankruptcy experts say that asbestos defendant companies often have little choice but to go directly into bankruptcy. “The American legal system was not designed to deal well with mass torts,” says Kenneth Klee, a Los Angeles bankruptcy lawyer and professor at UCLA School of Law. “The bankruptcy system has become the only way to address this problem.” Klee predicts that more companies with heavy asbestos liability will file in the future, if for no other reason than that their shareholders will require it of them. Odds are, though, that none of those companies will be as big as Owens Corning, nor its bankruptcy so complex. What makes the bankruptcy so technically difficult, explains Smith, is unrelated to asbestos. It’s the 120 plants worldwide, the 17 subsidiaries, and the intradebtor issues. Prior asbestos bankruptcies were more straightforward and didn’t give Smith or her outside counsel much of a road map to follow. The Philadelphia-based firm Saul Ewing has 10 attorneys working full time on the Owens Corning bankruptcy and another 50 committing “significant time” to the company, says Norman Pernick. He is the company’s lead lawyer on the case and chair of the firm’s bankruptcy group. THE HAIL-MARY PASSES Owens Corning is now in phase two of bankruptcy: The company is quantifying its liabilities. Smith hopes to finish this task by mid-2002. Then the company can submit a reorganization plan to the Delaware bankruptcy court., and, Smith hopes, emerge from Chapter 11 by the middle of this decade. As chief restructuring officer, Smith is masterminding the company’s strategy. But managing a bankruptcy is very different from directing a novel settlement program of one’s own devising. She’s more of a coordinator than before, in daily touch with an armada of bankers and their lawyers, her own bankruptcy and corporate counsel, attorneys for creditors and claimants, and her own legal department. Ultimately, Owens Corning should be in good shape, says James Rieger, an analyst at Morgan Stanley Dean Witter & Co. who tracks the building materials industry. “Because the company places all asbestos liability in a separate trust — and not with the company anymore — that can only be good for future operations.” Rieger also says that, as long as sales remain basically sound, Owens Corning will be able to build back its cash balance (which had dropped considerably with set-asides for asbestos costs). The bottom line, says Rieger, is that “the company’s operations should not be badly affected by the bankruptcy case.” But for Owens Corning to pay its asbestos liability fully and regain its financial footing, Smith claims, the company is betting on two long shots: Tobacco companies must help foot the bill for asbestos awards; and Congress has to pass a certain tax reform measure. Asbestos companies have tried — and failed — to pin some of the blame and cost of lung disease on tobacco companies. “You’re much more likely to develop lung cancer if you are a smoker exposed to asbestos,” argues Smith. Tobacco companies reject this argument, and assert that, even if there is an added risk from smoking, there is no way to put a percentage or dollar figure on it. “That train is not leaving the station,” says R.J. Reynolds Tobacco Company deputy general counsel Daniel Donahue. Judges around the country seem to agree: Finding the tobacco-asbestos link tenuous, they’ve dismissed these types of cases for remoteness. Owens Corning is also hard at work in Washington, D.C., seeking another form of relief. Asbestos settlement funds currently are taxed at 35 percent. Owens Corning and other asbestos-liable companies are lobbying to get that rate dropped. Legislation has been introduced in the House and the Senate, and the long list of bipartisan sponsors indicates that it has broad support. But that’s a long way from actually becoming law. Meanwhile, though, bankruptcy has not only given Owens Corning a reprieve, it’s also given Smith something of a break. Her schedule has mellowed. She’s on the road only a couple of days a week now. Her days at the office are a little shorter. She and her husband have bought a sailboat. Smith says that her children are vowing “to avoid a career like mine. My daughter says she doesn’t want to be a lawyer. My son does not want to work in an office.” But, she says, “I don’t have any regrets.” Right now, Smith is focused on bringing the company out of bankruptcy more profitable and more attractive to investors than it’s ever been. Then, it will be on to her next challenge: There’s never been a woman CEO of a building materials company. “Maybe I’ll be the first,” says Smith, smiling again. Related Charts: Largest Reported Asbestos Verdicts in the First Half of 2001 Largest Reported Asbestos Verdicts in 2000

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