An Asbestos Avalanche

As asbestos liabilities came to dominate W.R. Grace & Co.'s horizons, so they have taken over the lion's share of general counsel David B. Siegel's time. Siegel also has day-to-day responsibility for the company's bankruptcy. Has Siegel read Jonathan Harr's book about a group of families that claimed Grace dumped toxic chemicals that poisoned the drinking water? "Of course I read 'A Civil Action,'" he says.

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NAME: David B. Siegel TITLE: Senior vice president, general counsel and chief restructuring officer AGE: 52 THE BUSINESS: Over more than a century, Maryland-based W.R. Grace & Co. expanded from a shipping and materials trading company into a multinational conglomerate that, by the mid-1980s, was in businesses ranging from chemicals to cocoa to sporting goods, with annual sales of $6 billion and more than 80,000 employees. After years of restructuring, Grace is now focused on a few core products, including construction chemicals, container products, building materials, silica-based products, chemical catalysts and chemicals used in oil refining. The company now has 6,000 employees and operates in nearly 40 countries around the world. Grace has $1.6 billion in annual sales, nearly half of which comes from outside the U.S. Facing an unmanageable number of personal injury claims related to asbestos, Grace filed a Chapter 11 bankruptcy petition in Delaware on April 2, one of 40-some companies to file for bankruptcy protection because of asbestos litigation. SIZE OF DEPARTMENT: The legal department is a testament to W.R. Grace’s restructuring during the past 15 years. As recently as 1993, Grace had 90 lawyers in its legal department. Today, the number is just above 20. Grace moved its headquarters to Boca Raton, Fla., in 1991 and to Columbia, Md., in 1999. Siegel splits his time between the two offices. ASBESTOS WOES: “Grace’s asbestos problem stems from the purchase of a company called Zonolite that Grace bought in 1963,” Siegel says. The company mined vermiculite, a mineral that is contaminated with a form of asbestos, in Libby, Mont. As a result, part of Grace’s liability problem has been claims by its Libby employees and by their families, some of whom were exposed to asbestos fibers on the miners’ work clothes. The company was also hit with several hundred property-damage cases involving a Zonolite product — Monokote, an asbestos-containing fireproofing spray that was used to coat the structural steel in buildings before widespread asbestos use was banned in the 1970s. According to Siegel, all but seven of those cases have been resolved. “But by far the biggest part of Grace’s asbestos litigation came from fireproofing products and acoustical plasters that were manufactured by Zonolite with asbestos that they procured from third-party sources,” Siegel says. This led to an avalanche of personal injury claims. Siegel says that, as of the date Grace filed for bankruptcy in April, the company was the target of 330,000 asbestos injury claims. In many of the cases, plaintiffs sued as many as 50 to 100 former manufacturers of asbestos products, so Grace’s share in each settlement is typically small, a few hundred or a few thousand dollars. Motivated by a number of big verdicts in the few cases that go to trial, most of the defense lawyers have resigned themselves to settling almost all of the cases in wholesale fashion, hundreds and even thousands at a time. Siegel says Grace has paid out $60 million in court judgments related to asbestos, and nearly $700 million in settlements. Bankruptcy became unavoidable, Siegel says, when the company realized it could not see the end of the tunnel. “Really the story for us is the asbestos bodily injury claims,” he says. “If we didn’t have those cases, I don’t believe we would have ever considered being in bankruptcy.” He says there is no way to estimate how long Grace will remain in Chapter 11, although he doubts it will be less than three years. “Right now we are engaged in very preliminary motion practice around bar date and notice issues and the proposed case-management plan, which contemplates a couple of years to get the key issues to trial.” BALLOONING CLAIMS: An ongoing study of asbestos litigation by RAND Corp. projects that, absent some legislative solution, every company that manufactured asbestos products will have filed bankruptcy within the next two years. Although most lawyers on both sides of the asbestos litigation expected claims to trail off as time went on, the rate of filings against the remaining pool of nonbankrupt companies has actually accelerated. According to Siegel, claims against Grace had doubled in the year before it filed for bankruptcy. The RAND study projects that fewer than half of the asbestos injury claims have been filed to date. OTHER LEGAL PROBLEMS: A front-page story in The New York Times in July included claims that Grace, even after it had stopped making asbestos-containing fireproofing, marketed an “asbestos-free” version of the product that contained small — but possibly dangerous — amounts of the product. Siegel says he does not anticipate too many lawsuits targeting that product. Grace is also involved in an EPA-ordered cleanup of the Libby, Mont., site. PRIMARY OUTSIDE COUNSEL: With asbestos litigation in almost every state, Grace has numerous outside counsel all over the country, in addition to a handful of top-shelf firms that handle particular matters. Chicago’s Kirkland & Ellis is the lead outside firm on the bankruptcy. For transactional work and bankruptcy, Grace uses New York’s Wachtell, Lipton, Rosen & Katz. New York’s Weil, Gotshal & Manges handles antitrust issues. And Pittsburgh’s Reed Smith represents Grace in property damage cases related to asbestos products. ROUTE TO THE TOP: A graduate of Columbia University and New York University School of Law, Siegel joined the Grace legal department in 1977 after three years as an associate with New York’s Kelley, Drye & Warren. At Grace, Siegel began with transactional work, eventually supervising all the company’s business law practices. Between 1986 and 1998, Siegel oversaw some 30 transactions, most of them sales and spinoffs of Grace businesses. As asbestos liabilities came to dominate Grace’s horizons, so they have taken over the lion’s share of Siegel’s time. In April, Siegel was named chief restructuring officer, which gives him day-to-day responsibility for the company’s bankruptcy. A CIVIL ACTION: Jonathan Harr’s acclaimed 1996 book told the story of a years-long legal battle by a group of families that claimed Grace and Beatrice Foods had dumped toxic chemicals that poisoned the drinking water in Woburn, Mass. Did Siegel read the book? “Of course I read ‘A Civil Action,’ ” he says. “ I thought it was a very interesting book. I wasn’t involved directly in the original situation in Woburn. But I got very involved in connection with the movie. All of us spent a lot of time going back over what had happened so that we could respond to inquiries that we were sure were going to happen in connection with the movie.” Siegel says that later geological studies supported Grace’s trial defense: regardless of whether the chemicals could have caused the diseases claimed by the plaintiffs, Siegel says the Woburn wells had been closed before Grace’s chemicals would have been able to leach into them. PET PEEVES: “I have a couple of pet peeves,” Siegel says. “One of my pet peeves is lawyers and other people who aren’t open to creative approaches to solving problems. I mean, there’s never just one way of doing things. The other one that I have is, it bothers me when I deal with lawyers that are unable to put themselves into their opponents’ shoes.” PERSONAL: Siegel has been married for almost 30 years. He and his wife, Barbara, have three children. LAST BOOK READ: “It’s Not About the Bike: My Journey Back to Life,” by cancer survivor and reigning Tour de France champ Lance Armstrong.

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