WR Grace - Heckman Brief and Opinion Re Liability Estimation Process

IN

THEUNITEDSTATESBANKRUPTCYCOURT

FOR

THEDISTRICTOFDELAWARE--------------------------------------------------------------

JC

Inre:Chapter

11

CaseNo.01-01139(JKF)W.

R.

GRACE

&

CO.,etaI.,(JointlyAdministered)Debtors.

--------------------------------------------------------------

)(

OFFICIALCOMMITTEE

OF

EQUITYSECURITYHOLDERS'

MEMORANDUM

INSUPPORT

OF

DEBTORS'MOTION

TO

E)(CLUDE

CERTAINE)(PERT

OPINIONS

RELATINGTOCURRENT

AND

FUTUREASBESTOSPERSONAL

INJURYLIABILITY

TheOfficialCommittee

of

EquitySecurityHolders(the"EquityCommittee")

of

W.R.Grace

&

Co.("Grace")submitsthismemoranduminsupport

of

Grace'sMotionto

EJCc1ude

EJCpert

OpinionsinConnectionwiththeEstimation

of

itsCurrentandFutureAsbestosPersonalInjuryLiability(the"GraceMotion").

PreliminaryStatement

"Daubert

explains

that

thelanguage

of

Rule

702

requiring

theexpert

totestifyto

scientificknowledge

means

that

the

expert's

opinion

mustbebasedonthe

'methods

and

procedures

of

science'

rather

than

'subjectivebelief

or

unsupported

speculation.",l

TheEquityCommitteeapplaudsandjoinstheGraceMotioninitsentirety.ThroughtheGraceMotion,Gracehasforthefirsttimebroughtlogicandclearthinkingtothehistoricallymuddledissue

of

estimatingasbestospersonalinjuryliabilitiesforpurposes

of

bankruptcyreorganization.Inparticular,

new

lighthas

been

castupontwopivotalquestions:(1)

what

shouldtheCourtbeestimating?;and(2)

whatmethods

should

I

In

re

PaoliR.R.YardPCBLitig.,

35

F.3d717,742(3dCir.1994)(quoting

Daubert

v.

MerrellDowPharmaceuticals,

Inc.,509U.S.579(1993)(emphasisinoriginal».

KL32629416.4

theCourtacceptascompetentevidenceinmakingthatestimation?Grace'smemorandumiscomprehensive,andtheEquityCommitteedoesnotwishtosubjecttheCourttoundorepetition.Wethereforewriteseparatelyonlytomakesomebriefobservationspertinenttothesetwopoints.

2

TheEquityCommitteerepresentstheinnumerableholders

of

morethan70millionshares

of

commonstock

of

Grace.Gracestockispubliclytradedandhighlyliquid,withaveragedailyvolume

of

morethan900,000shares.Atthecurrentmarketprice

of

about$26(thepricehasrangedbetween$24and$30overthepastthreemonths),themarketcapitalization

of

Grace'sequityismorethan$1.8billion.

If

thereisanytruthtomarketefficiencyandthe"wisdom

of

thecrowd"-andthereassuredlyis-therecanbenoquestionaboutGrace'ssolvency.

See

VFB

LLC

v.

CampbellSoup

Co.,

482F.3d624,633(absentevidence

of

marketdistortion,marketvalue

of

equityisthebestevidence

of

solvency).Everyday,hundreds

of

peoplemakeinvestmentsexpressingtheirconfidencethatGrace'sassetsmassivelyexceeditsliabilities,includingGrace'saggregateexposureforpresentandfutureasbestospersonalinjuryliabilities.Eachdollarincluded

in

theCourt'sestimation

of

Grace'sasbestospersonalinjuryliabilitiescomesout

of

theequityholders'pockets.Totheextentthattheliabilitiesarereal,legitimateobligations

of

thecompany,thisis

as

itshouldbe.Evidencepresented

to

theCourtintheforthcomingestimationtrialwilldemonstratethat,

as

amatter

of

logicandepidemiologicalscience,thenumber

of

individualswhocouldrealisticallyhavedevelopedtrueasbestos-relateddiseasefromGraceproductsisdiminishinglysmall.

2

TheRevisedandAmendedCaseManagementOrder

of

theEstimation

of

AsbestosPersonalInjuryLiabilitiesallowstheEquityCommittee'smemorandum

to

be40pageslong;however,thismemorandum

is

only

13

pageslong.TheEquityCommitteehasagreed

to

allowtheDebtors

to

makeuse

of

theremaining

27

pagesfortheGraceMotion.

-2-

KL32629416.4

Whiletheequityholdersfullyunderstandtherequirementthattheybeartheeconomicburdenresultingfromlegitimateasbestos-relatedliability,theestimatedliabilityshouldbeconsistentwiththisreality.However,valueshouldnot,andmustnot,betakenawayfromGraceshareholdersonthebasis

of

thesort

of

arbitrary,whollyunscientificandresult-orientedextrapolations

by

theclaimants'purportedexperts,basedonhistoricalsettlementsthatwereenteredintoundertheduress

of

theunmanageablepressures

of

alitigationsystemout

of

control.Thesesettlementsinvariablystatedontheirtermsthatnoliabilitywasbeingadmittedandincludeavastnumbersettlements

of

claimsthatwere,itisnowclear,legallymeritless.Thus,theEquityCommitteerespectfullysubmitsthattheanswerstoeach

of

thetwoquestionsposedaboveareclear.

First,

theCourtshouldestimateGrace's

real

liabilityon

legitimate

claims

of

asbestos-relatedinjury

causedbyGraceproduct.

To

do

otherwise,toblinkreality

by

engagingintheclaimants'chimericalenterprise

of

guessingwhatwouldhavehappenedinafictitiousworld"butforthebankruptcy,"wouldmerelyperpetuatetheunprincipledshakedownfromwhichGraceenteredbankruptcytoseekprotection.

Second,

inmakingitsestimationtheCourtshouldrelyonlyupon

legitimateandscientificallydefensible

methods,astandardthatclaimants'estimationexperts-inparticular,Dr.PetersonandMs.Biggs--utterlyfailtosatisfy.Toilluminatethenumerousscientificshortcomings

of

thesepurportedexperts,theEquityCommitteehasobtainedtheexpertreport

of

Dr.JamesHeckman,aNobellaureateeconomistwhohasdevotedhiscareertostudyingandimprovingscientificmethodsformodellinghumanbehavior.(The"HeckmanReport,"acopy

of

whichisattached

as

Exhibit1.)-3-

KL32629416.4