Bondex Trial Transcript 1/7/13

7/29/2019 Bondex Trial Transcript 1/7/13

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Martin - Recross/Dorsey 220

A Right.1

Q -- of the document and youll see referenced small package2

joint treatment kits for the consumer market.3

A Thats right, yeah, this is what I was thinking of.4

Q Again, is this the kind of document that you referred to5

to confirm your economic analysis that these larger joint6

compound manufacturers were likely in the do-it-yourself7

market?8

A Thats right.9

Q Thank you, Dr. Martin, those are the only questions I10

have.11

THE COURT: Mr. Dorsey.12

MR. DORSEY: Im cleaning up, Your Honor, I promise.13

RECROSS EXAMINATION14

BY MR. DORSEY:15

Q Dr. Martin, do Exhibits 27, 28, and 29 tell you anything16

about how much of the do-it-yourself market any one of those17

three companies had?18

A No, theres no volume information on that.19

Q Thank you.20

MR. DORSEY: Thats all I have, Your Honor.21

MR. FINCH: One last question, Your Honor.22

THE COURT: Mr. Finch.23

MR. FINCH: Yes.24

RECROSS EXAMINATION25

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Martin - Recross/Finch 221

BY MR. FINCH:1

Q The economic analysis you just testified to today, youve2

never testified to that in an individual asbestos personal3

injury case where Bondex was a defendant and there was a jury4

in the box and Mr. Evert was -- or anybody like him was5

defending Bondex and there was a plaintiffs lawyer6

representing --7

THE COURT: Would you like to -- how many, how many8

clauses, Mr. Finch? How about one at a time?9

(Laughter)10

Q Let me just simplify it. Youve never testified --11

youve never testified in an individual asbestos personal12

injury case where Bondex was the defendant where it was a jury13

trial about either economic analysis you presented to date,14

correct?15

A Thats correct.16

Q Thank you.17

MR. EVERT: Your Honor, may the witness be excused?18

THE COURT: Anyone calling Dr. Martin again?19

UNIDENTIFIED SPEAKER: No, Your Honor.20

THE COURT: All right. Youre excused, Dr. Martin,21

thank you.22

THE WITNESS: Thank you.23

MR. FINCH: Your Honor, may I also be excused for the24

balance of the day being that I dont believe I have any more25

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222

witnesses today?1

THE COURT: Yes, Mr. Finch.2

MR. FINCH: Thank you.3

THE COURT: Is this an appropriate time for a recess?4

MR. EVERT: Thank you, Your Honor. Yes, it is.5

THE COURT: All right. Well take a ten-minute6

recess.7

(Audio off)8

MR. EVERT: Thank you, Your Honor. First as a9

housekeeping matter, Your Honor, we have tendered to the Court10

Debtors Exhibits 21, 27, 28, and 29 and I believe they are all11

without objection so we would formally move their admission.12

MR. SHEPPARD: No objection, Your Honor.13

THE COURT: All right. 27, 28, and 29 are admitted.14

MR. SHEPPARD: And, Your Honor, as a housekeeping15

matter from the ACC we would move E-113, E-165, E-171.16

THE COURT: Wait, Im sorry, E-113?17

MR. SHEPPARD: E-113.18

THE COURT: Okay.19

MR. SHEPPARD: E-165.20

THE COURT: All right.21

MR. SHEPPARD: E-171, E-426. And did you move Debtor22

19 in?23

UNIDENTIFIED SPEAKER: No, but we will. Wed be24

delighted to.25

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223

MR. EVERT: Well be glad to.1

MR. SHEPPARD: Would you please?2

MR. EVERT: Yeah. If you would add to that list3

Debtor 19, Your Honor, and Debtor 21.4

MR. SHEPPARD: No objection, Your Honor.5

THE COURT: All right. Theyre all admitted.6

MR. EVERT: Thank you, Your Honor. Your Honor, we7

would next like to publish the deposition of Harry Lafkas8

(phonetic) who is a United States Gypsum Company salesman and9

this deposition was taken in the underlying tort litigation and10

it is relevant to the testimony that Dr. Martin just gave.11

We have one dispute that I think we need to resolve12

with the Court first which is the debtors were operating under13

the assumption that the purpose of a timed trial would be to14

limit the Courts work in terms of the evidence that would be15

reviewed by the Court in association with this estimation and16

as a result we made our deposition designations under the17

assumption that we would be reading into the record the short18

deposition designations and it would count against our time.19

I think the ACC and the FCR were operating under the20

view that the deposition designations that they tendered which21

were much more lengthy would be just given to the Court to22

review at the conclusion of the case. And if thats what were23

going to do then we need to add a lot more designations in24

order to counter what they have designated. But our thought25

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224

was that we would just read them into the record, that way the1

Court would have a finite record and we would be consistent2

with the timed nature of the trial.3

THE COURT: All right. Well my typical practice has4

been to take the depositions outside court unless you have a5

witness here for cross examination purposes. However, if6

youre going to designate the entire deposition transcripts,7

two things, (i) I refuse to read them in the little four-page8

blocks. My eyesight is absolutely not good enough. I tried to9

read some of them over the weekend and literally I gave up. I10

cannot see them and Im not going to go buy a magnifying glass11

just to read four-page depositions so I want larger prints and12

then I am happy to read them.13

However, the other issue is if youre designating14

entire depositions youre going to have to make good use of15

those depositions in your proposed findings of fact and16

conclusions of law because as you know Im on a short17

turnaround time for this and I intend to get this opinion done18

before my retirement. So youre going to have to be very19

explicit in proposed findings and conclusions of law as to what20

those transcripts are all about and where theyre relevant.21

Other than that I dont have a preference. If you22

choose to proceed by reading them here thats fine, if you23

prefer to save some of your time for something else and have me24

read them later Im happy to read them later. If you want to25

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225

designate additional parts certainly Ill give you time to do1

that based on this misunderstanding.2

MR. EVERT: Thank you, Your Honor.3

THE COURT: So which way do you want to do it?4

MR. SHEPPARD: Your Honor, if I may and I think Mr.5

Evert summed it up, there was an honest misunderstanding here.6

And we had offered before that the debtors could certainly7

designate additional transcripts given their difference of the8

understanding from ours.9

I would also suggest, Your Honor, that to the extent10

we need to redo these, and we obviously will, we will make sure11

and go back that we are only designating that which is12

absolutely going to be part of our briefing.13


MR. FINCH: Your Honor, just to emphasize. Being15

familiar with the Courts practices in prior trials we tried to16

exercise restraint in the designations that we have identified17

so far and it was out intention to incorporate them into the18

findings, conclusions, and the briefings. We never thought19

that you were actually going to just skim through each and20

every designation. We would direct Your Honor to the21

designations that we believe are the most significant in the --22


MR. FINCH: -- in the briefing.24

THE COURT: And youre going to do that in the25

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226

proposed findings and in the briefs?1

MR. FINCH: Yes, Your Honor.2


MR. SHEPPARD: And, Your Honor, I guess lastly is is4

that to my knowledge I dont think anyone has designated a full5

transcript of the deposition here. I think the designations6

were giving to the Court with the full transcript with the7

designations blocked as Your Honor said she didnt want it. So8

again to echo what Mr. Herron said I think we were trying to be9

judicious.10

THE COURT: Okay. Thats fine. Its just that my --11

with the visual acuity problem I have I would prefer larger12

rather than smaller, although I did have a lawyer at one point13

in time who gave me a disclosure statement with one letter14

printed per page, I really dont need it quite that large.15

(Laughter)16

THE COURT: But something between the two would be17

helpful.18

MR. EVERT: Your Honor, I think what we can do given19

that its the Courts preference to take the depositions at the20

conclusion of the case, that will give us some time to put21

together a joint admission of the deposition where we give you22

the designated portions of the deposition in large font so that23

then you can review the depositions, just the designations, and24

theyll be clearly marked for you.25

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227

THE COURT: Yes, I think that would be helpful and1

unless there is a reason why you care who designated them, I2

dont particularly care. In the federal system once evidence3

is admissible it belongs, in quotes, to everyone and so I dont4

-- it doesnt matter to me unless there is an objection by one5

side to another who designated the depositions. If that6

shortens your time thats fine with me.7

MR. EVERT: And thats certainly fine with us, Your8

Honor. So what we will do is well maybe take a week or so9

after the conclusion of the evidence to add our designations10

that we didnt put in because of this misunderstanding and then11

well work with the other side to get to the Court soon12

thereafter full designations of the depositions in large font13

so that you can then just go through them at your opportunity.14

THE COURT: Is that all right with the FC --15

MR. SHEPPARD: Thats acceptable to the ACC, Your16

Honor.17

THE COURT: Okay.18

MS. ZIEG: We actually already have the designations19

done for each side so well just give you a copy and then you20

can just add to them.21

MR. EVERT: Sure. Whatever. Well work that out Im22

sure.23


MR. EVERT: Excuse me. Your Honor, Im sorry. We25

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had planned to read these depositions next. Since there is no1

need to do that before the Court and we can simply cite to them2

later, I want to inform the Court a little bit about schedule,3

you know, one of the issues that we run into with any timed4

matter like this is trying to make the witnesses fit the slots5

that you have.6

We have witnesses who are required to begin and7

complete their testimony tomorrow, we have others that are in8

the same boat for Wednesday, some of which are the ACC and9

FCRs which we are going to take out of order.10

And so it seems to me that the most efficient use of11

the Courts time and of the time we have for the trial would be12

if we could start one of our witnesses Dr. Mullin today but13

then were going to have to interrupt his testimony for the14

other witnesses coming tomorrow and we can then add --15

THE COURT: Thats fine.16

MR. EVERT: -- him back in later. Is that acceptable17

to Your Honor?18

THE COURT: Thats fine with me. Does anybody object19

to that process?20

MR. SHEPPARD: No, of course not, Your Honor.21

THE COURT: Thats fine.22

UNIDENTIFIED SPEAKER: Fine with me.23

THE COURT: Thank you.24

MR. EVERT: So we would call Dr. Charles Mullin to25

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Mullin - Direct/Evert 229

the stand, Your Honor.1

COURTROOM DEPUTY: Please raise your right hand.2

CHARLES HENRY MULLIN, DEBTORS WITNESS, SWORN3

COURTROOM DEPUTY: Please be seated and speak into4

the microphone.5

DIRECT EXAMINATION6

BY MR. EVERT:7

Q Could you state your -- oh, Ill get over the microphone8

-- could you state your full name for the record please, sir?9

A Charles Henry Mullin.10

Q And, Dr. Mullin, where are you employed?11

A Im currently working at Bates White.12

Q And what do you do at Bates White?13

A I am an economic consultant. I work mostly in the areas14

of environmental and product liability.15

MR. EVERT: Your Honor, by agreement of the parties16

the CVs of the witnesses weve agreed are coming in and also17

under the agreement earlier in terms of demonstratives in terms18

of the reports. If I could offer the Court a copy of Dr.19

Mullins CV --20

THE COURT: Yes.21

MR. EVERT: -- and copies of his reports.22

MR. SHEPPARD: Without objection, Your Honor.23


MR. HERRON: No objection.25

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MR. EVERT: His CV, Your Honor, has been marked as2

Debtors Exhibit 97.3


MR. EVERT: And, Your Honor, Dr. Mullins affirmative5

report has been marked as Debtors Demonstrative is it 9? Are6

we up to 9 I think?7

THE COURT: Yes.8

MR. EVERT: Yes. And his rebuttal report is marked9

as Debtors Demonstrative 10.10

THE COURT: All right. Thank you. The report is 9,11

the rebuttal report is 10?12

MR. EVERT: Yes, Your Honor. Okay. Were getting13

organized.14



Q Okay. Sorry, Dr. Mullin. I have put in front of you a17

copy of your curriculum vitae. Is that reasonably correct?18

A The only thing to my knowledge that it would be missing is19

I was deposed last Friday.20

Q Could you tell me, Dr. Mullin, briefly your educational21

background?22

A I received my undergraduate degree in 1992 from the23

University of California at Berkeley in mathematics and24

economics and I received my Ph.D. in economics from the25

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University of Chicago in 1998.1

Q And after you received your Ph.D. what did you do in the2

working world?3

A My primary employment was as -- on the faculty as an4

assistant professor at Vanderbilt University in the economics5

department.6

Q And I think you also served to sit on the faculty at the7

University of California Los Angeles, is that true?8

A I took one year of leave when I was at Vanderbilt9

University and I took that year leave during the calendar year10

of 2002 at UCLA.11

Q And have you previously been involved in the forecasting12

of asbestos-related liabilities?13

A Frequently.14

Q Would you tell me about that experience please?15

A I transitioned from really an academic career into16

economic consulting about ten years ago. Since then the17

largest component of my work has been really asbestos-related,18

probably half to two-third of that, more in an insurance19

coverage setting. The remainder of that work either related to20

bankruptcy or other types of financial reporting, disclosures,21

due diligence, projects for potential acquisitions, potentially22

some insurance underwriting type activities.23

And across those contexts whether its negotiating24

settlement in an insurance coverage case or its an asbestos25

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bankruptcy, the quantum of future loss that a policyholder or a1

debtor may face is a relevant issue.2

Q And what other types of work have you done in economic3

consulting at Bates White other than asbestos?4

A Its been a wide array of different mass tort,5

environmental tort type issues so Ive done work related to6

silica, Ive done work related to various types of7

environmental cleanup, Ive done work on a couple projects8

related to tobacco. Im sure theres some others. Theres9

food additives. Theres a few different things in there.10

Q How large a firm is Bates White?11

A Its I think in the neighborhood of 175 employees at this12

point in time.13

Q And what does Bates White do primarily in the economic14

consulting world?15

A Most of the work of the firm is focused in one way or16

another on litigation. It really varies by the practice areas17

in the firm, whether thats a formal state level litigation,18

whether thats something like going in front of the FTC or the19

DOJ on merger related work, but its all related to litigation20

in some frame work with maybe 10, 15 percent of the work on21

non-litigation matters.22

Q Have you published in the field of economics?23

A Yes.24

Q Tell me what kinds of things you have published.25

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A While I was an academic my research really focused on what1

I would describe as robust estimation techniques. Its an area2

within econometrics so econometrics is really the application3

of statistical analyses to the types of problems that4

economists look at.5

And robust estimation is really trying to figure out6

ways of instead of coming up with an answer, so instead of7

saying the answer is, you know, five and Ive done the analysis8

and invoked the assumptions, its to weaken the assumptions and9

really come up with a more reliable estimate that has a broader10

range.11

So instead of maybe reaching a conclusion that the12

answer to some question is five, you say with a high level of13

confidence I know it falls between four and a half and five14

point three.15

Q You mentioned econometrics. Is that a subset of the field16

of economics?17

A Its one of the primary fields so at this point when you18

go to graduate school in economics your first-year course work19

typically is broken into three areas, microeconomics,20

macroeconomics, and econometrics. And its kind of one of the21

core sets of curriculum in the beginning and then it was one of22

the two fields that I specialized in in my more advanced23

graduate work.24

Q In the articles that you described earlier that you had25

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published in the field of economics and econometrics, were1

those in peer reviewed economic literature? I mean what types2

of journals?3

A The large majority of what I published while I was an4

academic was in peer review journals. There was also a couple5

that would not be characterized that way.6

Q Have you previously served as an expert in litigation?7

A Yes.8

Q Have you previously served as an expert in9

asbestos-related estimation litigation?10

A In many of the cases I have from many of the coverage11

cases, thats an element of it, and in the bankruptcy context12

the only place where I actually testified in court would have13

been the plant insulation confirmation hearing.14

Q Other than the times that you have testified in court have15

you served as an expert in asbestos-related estimation16

litigation?17

A I have been retained numerous times.18

Q And have you been accepted as an expert in the -- at the19

time you have been proffered as an expert?20

A Yes, I have.21

MR. EVERT: Your Honor, we would tender Dr. Mullin as22

an expert in the field of economics, econometrics, and the23

estimation of asbestos-related liabilities.24

MR. SHEPPARD: Your Honor, may I?25

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Mullin - Voir Dire/Sheppard 235

THE COURT: Yes.1

VOIR DIRE EXAMINATION2

BY MR. SHEPPARD:3

Q Good afternoon, Dr. Mullin.4

A Good afternoon.5

Q Now you testified that you had published peer reviewed6

articles in the field of econometrics as an academic. So those7

would have been published more than ten years ago?8

A I think the publication lags in economics, it can be quite9

long, so I could look. It was all research I did more than ten10

years ago, but many of the publications themselves would have11

actually come out in print more recently.12

Q How recent?13

A I can look. I have two publications, one in the Journal14

of Econometrics which is the Identification and Estimation with15

Contaminated Data, When Does Covariate Data Sharpen Inference,16

from 2006, and a second one which is Recombinant Estimation for17

Normal-Form Games with Applications to Auctions and Bargaining18

in Games and Economic Behavior also in 2006. Those would be19

the two most recent peer reviewed publications.20

Q Have you ever published a peer reviewed article, Dr.21

Mullin, in which you laid out the methodology that you employed22

in this case? And let me be more specific if I can. Where you23

laid out the methodology where you disaggregate the asbestos24

liability by subtracting complicit costs as well as reallocated25

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liability as a result of joint and several liability.1

A I havent published any peer reviewed in the academic2

sense of a peer reviewed article on asbestos directly, only on3

the types of estimation techniques that I would be employing to4

make those, draw those inferences.5

Q So youve never published an article where you discussed6

the methodology to use -- you used in this case, is that7

correct?8

A I said theres a line --9

Q In an asbestos case.10

A -- theres a line there which is in terms of the11

methodologies, I view the methodologies that Im employing very12

much draw upon the types of research I did and the articles I13

published methodologically of how do you draw inference in this14

type of a setting. Having done an application of that in an15

asbestos setting, I have not published an article that applies16

those techniques to an asbestos-related setting.17

Q Okay. And my question was really quite specific, Dr.18

Mullin. Did you ever publish an article where you discussed19

your theory of implicit defense costs in an asbestos20

estimation?21

A Would I consider it -- the theory Im relying on is the22

theory that comes out of the law and economics literature, its23

not my theory. But that theory --24

Q Dr. Mullin, I get that. The question was really simple25

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and Id ask you to just answer the question.1

A I said, no, I havent published a specific article on2

asbestos-related litigation.3

Q Okay. Now you also testified that you have provided4

economic consulting and in particular with regard to asbestos5

estimation in the insurance field, is that right?6

A Well in insurance I am frequently retained in7

coverage-related litigation matters.8

Q Okay. And does that relate to estimating asbestos9

liabilities for certain defendants?10

A In a coverage setting normally the future liability is11

handled more on a declaratory judgment fashion. But for all of12

the settlement discussions a common way of those cases ending13

is by commuting the insurance policy. So the insurer will14

write a lump sum check today that absolves them of any15

obligations under the policy.16

And so a major piece of all of those is always17

forecasting what the future liabilities will be, allocating18

them to the insurance to come up with what would be a19

reasonable size check to commute the policies.20

Q Okay. Can we assume, Dr. Mullin, that you have never in21

those retentions used the methodologies that we are talking22

about here in terms of implicit defense costs and reallocation23

of liability as a result of joint and several shares in the24

insurance field?25

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A I have used them. I have used them in a different manner1

than here. But the reallocation issue actually has come up2

frequently in insurance coverage settings. The transaction3

cost arguments mean most insurance covers both defense costs4

and settlement payments. And since the insurance covers both5

the distinction is not normally relevant.6

Q So thats a no?7

A So on the transaction cost component no, on the8

reallocation component in a coverage setting yes.9

Q Okay. Now you also testified that you provide services10

with regard to companies doing due diligence, correct?11

A Correct.12

Q Okay. And does that also involve the estimate of asbestos13

liabilities?14

A Its typically depending on how extensive the liabilities15

have been historically, is focused on the total quantum of loss16

from an economic sense, settlement payments, defense costs all17

lumped together. The distinction at times is made between18

settlement payments and indemnity, particularly if the company19

still has primary insurance limits available where it would be20

paying defense in addition to those limits, so that distinction21

would affect the economics of the transaction.22

Q And with regard to your work in financial reporting, do23

you -- have you ever used the methodology that you have24

proffered in this case?25

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A Again the general methodologies that Im relying on, yes.1

I have gone through most if not all of the steps.2

Q Well let me make it more specific if I can. In connection3

with your consulting on the financial reporting of public4

companies, have you ever advised one of those companies that5

they should report a number where they reallocate their6

liability based upon some construct of liability?7

A I think in a broad sense yes. We do scenario analyses for8

our clients in this frame work. We dont give one number when9

were forecasting. You know, financial reporting frame work10

theres a range and one of the things we explicitly quantify in11

that range is in the sense of lower expenditure scenarios for12

the company or ones where there would be developments of more13

advantageous evidentiary rules for them.14

And potentially as, for example, as other bankruptcy15

proceedings have ended and more of the 524(g) trusts have come16

online and started paying money to claimants, we have17

explicitly run scenarios where weve quantified for clients18

what could be the potential impact of that on both their19

defense and indemnity payments as that evolves going out into20

the future.21

Q Have you advised a client to report in a publically filed22

financial statement that they should subtract from their total23

indemnity payments a sum based upon a reallocation of liability24

based upon several share?25

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A I said weve only done that in a partial sense which is if1

you were to take for example W.R. Grace, we have incorporated2

that in the future there will be a trust paying money. Thats3

not happening today, it wasnt happening in their history of4

two, three, four years ago. That will lower their costs5

potentially in the future and weve explicitly --6

Q Dr. Mullin, my question was about financial reporting.7

A Im answering that.8

Q Okay. By --9

A In that context we will quantify for them what is the10

effect of the return of payments from that defendant. Now it11

will be the trust as a successor to the defendant, but we12

explicitly accounted for how that would affect, or at least13

potentially under scenario analysis, affect their future14

payments.15

We havent done it holistically as though every16

defendant was back. So its only a partial return because the17

trust may or may not pay as much as the defendant was before.18

But weve done the same types of analyses.19

Q Now youve never testified in an estimation hearing in an20

asbestos bankruptcy case, is that correct?21

A Thats correct.22

Q Okay. And youve never been admitted as an expert have23

you, Dr. Mullin, in an asbestos estimation hearing?24

A No, this is the first time Ive been asked to testify in25

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that context.1

Q And I guess, Dr. Mullin, the theory that youre espousing2

here, is that a novel theory that has never before been3

testified to?4

A I dont view it as a novel theory, I view it as its been5

in the peer reviewed literature and law of economics since the6

1970's, that transaction costs affect settlement amounts. The7

joint transfer of liability, the fact that when Johns Manville8

went bankrupt that created orphaned liability shares for others9

is a well established both empirical and theoretical concept.10

So I dont view either of these concepts in any way as being,11

you know, novel.12

Q Let me try it again. Have you ever testified about13

subtracting a concept of implicit defense costs from a debtors14

asbestos liability before?15

A I have not testified on that specific topic before.16

Q Have you ever testified, Dr. Mullin, about subtracting17

from an asbestos defendants liability a component for18

reallocation of liability?19

A There are aspects of that that I think came up in my20

testimony in the plant insulation confirmation hearing.21

MR. SHEPPARD: Excuse me, Your Honor.22

Q Youre not offering an opinion in this case are you, Dr.23

Mullin, regarding what the present and future asbestos24

liabilities of Bondex, or the Reardon line as you call them,25

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would be had these bankruptcies not been filed, is that1

correct?2

A No, thats not correct.3

Q Thats not correct?4

A Thats the first step in my analysis and then I break that5

apart into its various components so thats really the first6

piece that comes out of the analysis I do is that7

quantification.8

Q Isnt it true, Dr. Mullin, that you testified in your9

deposition that you are quantifying what the debtors true10

liability would be under the Federal Rules of Evidence?11

A No.12

Q Its not?13

A I believe -- I believe what I testified was that I had a14

specific scope of charge but then I was providing building15

blocks for which one would be able to under alternative legal16

rulings determine what the liability is.17

Q So you didnt testify in your deposition that you are18

preparing this analysis under the Federal Rules of Evidence?19

MR. EVERT: Your Honor, I just object to the20

question. Thats not the way you impeach someone through the21

deposition.22

THE COURT: Thats sustained.23

MR. SHEPPARD: Thank you, Your Honor. Your Honor, if24

I could just have one second.25

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THE COURT: Yes.1

MR. SHEPPARD: Your Honor, may I approach?2

THE COURT: Yes.3

MR. SHEPPARD: Thank you.4

A Thank you.5

Q Dr. Mullin, let me ask you to turn to Page 32.6

THE COURT: Whats the date of the deposition please?7

MR. SHEPPARD: Im sorry, Your Honor. This is the8

deposition of Charles H. Mullin taken November 15th, 2012.9

THE COURT: Okay. Thank you.10

MR. SHEPPARD: And, Your Honor, I would have this11

marked for identification purposes as ACC demonstrative 1001.12


Q So, Dr. Mullin, Im going to read from Line -- can you14

read from the question on Line 2 please?15

Q Okay. I think I understand your methodology and I16

appreciate that. And again what Im trying to understand is17

where or how you are defining liability and in what context.18

Are you defining liability in the context of had they stated in19

the tort system or in some other venue?20

A So the --21

Q And would you read the answer? Thank you.22

A Yeah. So the answer. Date is supposed to be data there23

but.24

A So the data Im relying upon, as I said, its based from25

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the tort system. So it is using a tort system definition of1

liability in the state tort system. Thats where the2

settlement data comes from. So those are what the numbers are3

predicated upon.4

I think you can conclude that that overstates what5

the liability would be if it was in a Federal Rules of Evidence6

system as opposed to the state system. But the data itself is7

based on the state system and it is the liability in the state8

court which as I said I think overstates what the liability9

would be if you move it to a federal system.10

Q Thank you, Dr. Mullin.11

MR. SHEPPARD: Your Honor, the Committee would renew12

its motion, its Daubert motion seeking to exclude the13

testimony of Dr. Charles Mullin on the grounds that he is not14

estimating the liabilities of this debtor as if they were in15

the tort system and under state law as required under the16

Bankruptcy Code and 524(g).17

MR. DORSEY: We would join that motion.18

THE COURT: Mr. Evert.19

MR. EVERT: Your Honor, we would oppose the motion of20

course based on all the arguments that we made previously. Dr.21

Mullin is clearly an expert, clearly has just indicated that22

his estimate is based on the state court, starts with the23

historical state court data, and we would for all the reasons24

we enunciated in our previous response to this motion would25

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oppose it.1

THE COURT: Just from the deposition statement that2

the witness just read the statements clear that he is3

estimating based on the liability thats in the state tort4

system. Im not sure what the next phrase that it may5

overstate the liability if he moved to a federal system means.6

But it seems to me that thats a question for examination that7

does not go to qualifications but may go to the content of his8

testimony so the objection is overruled.9

MR. SHEPPARD: Thank you, Your Honor.10


DIRECT EXAMINATION12

BY MR. EVERT:13

Q Dr. Mullin, Im glad were here at this point because I14

think its a good segue. Mr. Sheppard asked you a number of15

questions going toward the issue of whether you believed your16

methodology was novel which is a term weve heard many times in17

this case. Would you explain to the Court what your18

methodology here in estimating the liabilities is and what you19

were asked to do?20

A I was asked by the debtors ultimately to provide an21

estimate of the several share of liability arising from the22

various products, in my reports I define that as the Reardon23

product line, but the asbestos-containing products that were24

produced over the years and what would be, you know, their25

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several share of liability in the state court system that arose1

from that. And I was asked to do that effectively separately2

for each of the debtors.3

And methodologically however ended up going about4

doing that, I mean I can get how I arrived at this methodology5

at some point, but ultimately I started with the state tort6

system settlement data and I took that, figured out from that7

what was really driving the underlying liability, looked at how8

that would have progressed in the tort system had they9

remained, to get a count of how many claims of different types,10

not just how many claims in total, but how many claims in11

different categories would the debtors have faced.12

And I ultimately put those into four categories which13

I viewed as, you know, high-value, mid-value, low-value, and14

claims that would be dismissed. And then for each of those15

types of claims I continued to analyze to figure out how much16

money was associated on average with each of those claim types.17

And thats the piece that then really differed18

between what was a settlement payment. The tort system would19

tell me okay, theres in the neighborhood of 50 high-value20

settlements a year and those claimants got close to half a21

million dollars a year in the tort system or half a million in22

payment so thats in the neighborhood of $25 million a year23

being paid to this group of 50 high-value claims.24

And then the question was for that how much of thats25

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liability, how much of that -- and when I say liability I mean1

what they would have ultimately been found liable for by a2

jury. So whats the expected outcome at trial. And thats3

really how the law and economics literature defines it. They4

take the expected -- the probability youll be found liable5

times the damages conditional on being liable since thats the6

expected loss.7

So its really trying to say how much of that was8

expected loss, how much of what was due to the debtors desire9

to avoid defense fees, how much of that was due to a transfer10

of liability. And when I talk about that several share, Im11

really talking about thinking of a world where Johns Manville,12

Celotex, Eagle Pitcher, you know, U.S.G., everybodys back in13

the court system. So all of those codefendants are present and14

youre back in that frame work where all those codefendants are15

paying 100 percent of their share. How much would Bondex be16

paying or how much would the debtors be paying?17

And that was the ultimate opinion that I was asked to18

get to was for each of SPHC and Bondex what was that several19

share under that theoretical world in which all of those20

defendants are back in the tort system with them.21

MR. SHEPPARD: Your Honor, we would --22

A To get there I did it in steps.23

Q But you started --24

MR. SHEPPARD: Your Honor, we would renew our motion.25

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We would renew the Daubert motion based upon the answer of the1

witness.2

THE COURT: Why?3

MR. SHEPPARD: Because he just said that hes4

estimating them in a theoretical world and not as if they were5

in the tort system.6

THE COURT: He said he was estimating them as though7

all of the debtors essentially were back in the tort system.8

Again, I mean I think this goes to the weight to be attributed9

to his evidence but I dont --10

MR. SHEPPARD: Thank you, Your Honor.11


Q All right, Dr. Mullin, you covered a lot of ground there.13

Let me go back to the beginning of the answer. I think you14

said you started with the historical claims data, is that15

right?16

A Correct.17

Q When you say you started with the data, tell me about18

that. What did you do?19

A I really did the same first step I do on any project that20

comes into me for an asbestos-related matter. I want to21

understand the products that the defendant had and I want to22

map that to the tort history experience and understand whats23

driving that tort history experience.24

I have a strong belief that you have to understand25

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why the tort outcomes that are being observed are happening.1

You cant just take them as a black box and blindly extrapolate2

them forward.3

You need to have that understanding of what are the4

merits, whats driving different types of claims to be able to5

give a reliable forecast going forward so thats the first6

thing I always do is ground myself in that tort experience and7

really the use of the defendants products.8

Q So you were presented with a database that had information9

in it, settlement information and dismissal information about10

the historical claims, is that right?11

A Correct.12

Q And then how did you take that information and do what you13

just described you wanted to do?14

A The very first thing I did with it was just I did some15

simple tabulations, just looking at how many claims were they16

getting by year, how much money were they spending by year,17

just getting a high-level overview of what was the experience.18

Ultimately I requested from the debtors a sample of19

underlying claim files, so the underlying files that actually20

led to the values that are in the database, to be able to get a21

richer picture of what was the history.22

Q And tell me about that sample. So when you say you asked23

for a sample of the underlying claims, what does that mean?24

A I asked for approximately 1,000 claim files so I25

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constructed a statistically representative out of random1

sample. Its not a simple random sample. I was more concerned2

about the claims that were paid money than the ones that3

werent paid, so it over sampled paid claims relative to4

dismissed claims. But it was a statistically representative5

sample of about 1,000 claims and I asked for really the6

underlying files from the debtors on those claims.7

Q And then ultimately as a part of the process with the8

experts on the other side did you look at additional claim9

files?10

A Ultimately the FCR and ACC collectively sampled11

approximately 450 claim files. It as well over sampled the12

high-value claims so there was an overlap of I think more than13

100 of the files between the original sample that I requested14

and the sample that was requested by the FCR and the ACC. So15

in total there was around 1250 claim files.16

Q And those claim files gave you deeper information in terms17

of the individual claims whereas from the database you had18

pretty much settlement amounts, is that?19

A The database is fairly high-level information. The20

underlying claim files let you construct an exposure profile21

for example so you can look at a settlement and see did a22

claimant, you know, were they an electrician, were they a pipe23

fitter, did -- were they in the Navy. You can really lay out24

whats their history of different sources of exposure, you can25

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figure out which particular products for the debtors they were1

asserting exposure to. It just gave you a lot richer2

information about the claimants and what drove the liability.3

Q Did you -- were verdicts or cases that were tried to4

verdict, were they included in those claim files?5

A They were. I asked for all the verdicts.6

Q So it was not a sample.7

A It wasnt a sample or, technically its a sample but, yes,8

its -- we sampled the whole population.9

Q Its a sample of 100 percent. Yeah. Okay.10

A Correct. We asked for all the verdicts. Im trying to11

remember if we got them all or if one of them couldnt -- I12

think we got them all. I dont remember with certainty whether13

it was all or we were missing one.14

Q Okay. How about defense fee information? Did you request15

information in that regard?16

A I did. Theres only for a fairly recent time period was17

there claim level specific defense information available, or at18

least that I received, that allowed you to go claim by claim19

and see how much was being spent and then its more aggregate20

kind of annual expenditures by fiscal year is what I attained21

for earlier years.22

MR. EVERT: Your Honor, at this time just for an23

administrative matter Id like to offer for admission Debtors24

Exhibit 1 which is the historical claims database which I think25

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is to be admitted without objection.1

MR. DORSEY: It is, Your Honor.2

UNIDENTIFIED SPEAKER: No objection, Your Honor.3

THE COURT: All right. Debtors Exhibit 1 is4

admitted.5

Q Now, Dr. Mullin, when you looked at the historical claims6

database and you started to compile information about the cases7

that were within that database, what were you looking for8

initially?9

A Initially Im looking for really whats driving the10

liability, has the liability been stable, is it not, you know,11

the payments, how is this particular -- how are these two12

debtors behaving in the tort system, and trying to learn at the13

same time how that maps to how strategically are the claims14

being defended to see if thats varying by jurisdiction or in15

some way that would explain differences that are observed in16

that data.17

MR. EVERT: Your Honor, if I may approach with18

debtors demonstrative. I should have warned the Court that I19

cannot count so apparently I --20

THE COURT: Up to 11 I believe.21

MR. EVERT: Yes, Your Honor.22

Q Now, Dr. Mullin, at the debtors request were you only23

interested in mesothelioma payments or mesothelioma claims?24

A Not initially. I mean initially I was looking at the25

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totality of their experience, but I forget the exact date but1

at a certain point the parties reached a stipulation with2

regard to the non-mesothelioma claims and so the only -- my3

scope of inquiry got constrained at that point to just looking4

at mesothelioma claims.5

Q Now for demonstrative purposes Ive handed you Debtors6

Demonstrative D-11 and I have it up on the ELMO for those who7

dont have a copy. Tell me what this illustrates.8

A This is so the vertical bars in the graph are showing for9

each year what was the aggregate amount of settlement10

commitments that were made in that given year. So its not --11

its when settlement agreements were struck is how everythings12

been dated.13

Q And why would you use commitments instead of paid dollars?14

A Well for one reason I wanted to include the what goes by15

SBND claims or settled but not documented claims. Those are16

settlement commitments that had been made within the tort17

context but the money hadnt actually been paid yet. But its18

a relevant part of the history.19

The history is really when -- when are the -- how20

much are they agreeing to pay and when as opposed to the cash21

flow issues, and when I was here earlier and Mr. Tompkins was22

talking about how they made structured payments through time,23

its not even clear how you map those to individual claimants.24

So when you settle a group of claims for $22 million and you25

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agree to write three checks in the future, which checks went to1

which claimant, doesnt have a clean dating. When the2

settlement for those claimants was struck does. So its one3

dating convention that I can use consistently across all of the4

claims.5

Q Okay. So as I understand it this particular graph it is6

the bars represent dollars?7

A Correct. The bars represent dollars. The left-hand8

access is telling you how many dollars it represents.9

Q And I see that the years are in fiscal year.10

A Correct.11

Q You heard Mr. Tompkins testify I think about RPMs fiscal12

year ending on May 31. Is that the fiscal year that were13

talking about here?14

A Correct. This is a June 1 to May 31st fiscal year.15

Q And why would you use fiscal year?16

A I was motivated for two reasons. One was convenience.17

The debtors petition date aligns with the fiscal year. So if18

you use fiscal years you have complete years in every year.19

You dont have to deal with a partial year and any adjustments20

one may need to make for only observing part of a year. It21

allows you to do everything in full year increments.22

Two, in my experience most defendants try to manage23

their litigation on a fiscal year basis. So they to the degree24

they have cash flow concerns, to the degree they try to manage25

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or hit certain targets or do different things, theyre doing1

that on a fiscal year basis, not on -- many the fiscal and2

calendar year are the same thing, but thats -- when those3

differ most defendants data looks more stable and its more4

reliable if you look at it through that lens.5

Q So if we look at this graph it appears to me that there --6

you have three different colors here for the dollars, the green7

and the, I dont know, is that orange, and the blue. Can you8

tell me --9

A Correct.10

Q -- what those represent?11

A Conceptually the green is really before, I mean the green12

is very hard to see, its for the 1995 through 1999. Thats13

before there was really a runup in either claim count or14

dollars. So this is when they had a very small footprint in15

the underlying asbestos litigation and the orange is really the16

transition period.17

From 2000 to 2002 is the beginning of ramping up18

where they saw a large increase in the number of claims and at19

the same time a correspondingly large increase in settlement20

payments.21

By 2003 theyd really transitioned to that new level.22

So theyve gone from paying, you know, call it a million a year23

in the 1990's to paying about 50 million a year. So theres a24

very large increase but where you see 50 million a year, you25

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see 50 million a year in 2003, 2004, you also see a number1

close to that in 2010. And since 2003 its been relatively2

stable and theres clearly year-to-year movements, but relative3

to the increase that we observe previously things that -- the4

world stabilized for these defendants.5

Q Now I see a small number in 2006 and higher numbers in 086

and 09. Does that affect your view of the stability?7

A It was something I looked into explicitly. So in 20068

there was about half the number of settlements that you would9

observe in a normal year, you know, there is instead of10

settling in the sense of -- when I say settlement I mean paying11

as opposed to resolving which would include dismissals -- there12

was about half as many settlements as youd normally observe,13

it was around 250 instead of 500. That resulted in much lower14

payments that year.15

You see a correspondingly higher number of16

settlements and higher amount of payment in both 2008 and 2009.17

If you actually track the claims through, the claims paid in18

08 and 09 are a little bit -- have been in the tort system19

longer, theyre more aged. The data is very consistent in20

terms of all the underlying characteristics with for some21

reason it appears that the debtors deferred some of their22

settlements a bit and the numbers line up almost exactly. 200623

is about $20 million below 50 million and 2008 and 2009 are24

each 10 million above.25

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So theres the one year thats 20 million below,1

theres two years that are 10 million above. They appear to2

really be offsetting effects in terms of the timing of payments3

and it averages about 50 million a year.4

Q And in your efforts to begin your estimation of the5

debtors mesothelioma liabilities, what is the importance of6

this stability from 2003?7

A Well this -- the most important thing I took from this is8

that I really should be focusing on the 2003 to 2010 time9

period. I mean going back further than 2003 Im going back10

into a different world for the debtors. You know 2003 to 201011

is the world in which theyve been living and appears to be12

relatively stable. So I was going to focus my attention on13

those eight years as opposed to trying to reach further back.14

It kind of framed for me what was the appropriate time period15

to explore.16

MR. EVERT: Your Honor, may I approach? Thank you.17


Q Dr. Mullin, Ive handed you Defendants -- Debtors -- Im19

going to say that a lot, Ill just tell you right now --20

Debtors D-12 demonstrative, for demonstrative purposes. And21

if you would tell me what the blue bars on that graph22

represent.23

A Theyre really the exact same blue bars that were on the24

previous demonstrative, its just now only focusing on those25

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last eight years of fiscal year 2003 through 2010.1

Q So this is the 03 to 10 fiscal year dollars committed by2

the debtors in mesothelioma settlements, is that right?3

A Correct.4

Q And again we are talking about fiscal years as we were in5

the last graph, is that correct?6

A Thats correct.7

Q Now the title of this demonstrative or the legend is8

stable history combined with Nicholson extrapolation suggests9

between 600 million and 800 million nominal in future tort10

settlements. Tell me what that means.11

A So we heard a bit earlier today somewhat about the12

Nicholson curve and forecast. I mean Nicholson and co-authors13

wrote a paper back in 1982 which laid out a forecast of future14

asbestos disease -- mesothelioma disease incidents. It did15

things beyond that but of interest to us is the mesothelioma16

ones.17

I have -- that model if I remember correctly right18

now actually ends in 2029, but it doesnt go all the way out to19

2050, 2060's. I have extended that out based on the work done20

really in the KPMG version of that model. So the 2009 forward21

portion of that is technically an extension of whats seen22

within Nicholsons paper.23

But so Nicholson has a shape of a curve for how many24

future diagnoses or, you know, incidents of mesothelioma will25

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occur. And what the exercise that I did is I said if I assume1

everything is going to be held constant, so for every claim,2

for every individual, there is going to be an equal likelihood3

in the future that that individual thats diagnosed with4

mesothelioma will file a lawsuit against the debtors, the5

probability they get paid will stay the same, the probability6

theyll, you know, everythings static and we just kind of7

extend that whole thing out.8

If I extend that all out and do it very simple just9

off of payment level. So Im looking -- and if I calibrate10

that and say the whole eight-year period is the period I want11

to calibrate that to and I just fit the curve and do the best12

statistical fit to those eight years, it tells me theres going13

to be about $600 million of future tort payments, you know,14

thats the blue line.15

If I take that off the highest points observed in the16

history and calibrate it off the two highest years observed, so17

2008 and 2009, it tells me that if I brought it off the two18

high points and just extrapolate out, you know, Im going to19

get 800 million of future tort payments. You know these are20

nominal, Im not touching, you know, time value of money type21

issues.22

But that says if you want to look at tort settlements23

youd expect something in that range. You know its running24

off kind of the eight years or since youve seen the level25

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shift and then the two highest years observed.1

Q So theres a lot of information there that I want to try2

to break down. First of all, help me understand. The3

Nicholson study as I understand it projects incidents in terms4

of people yet its on -- the axes on this graph is dollars. So5

tell me how that -- does it have to do with the slope of the6

curve or how does that work?7

A Correct. Im forecasting out the dollars proportional to8

the number of people. So where if you look at the blue line9

and in the two thousand -- 2003 to 2005 period right about $5010

million. What the Nicholson curve is telling me is for every11

50 people that used to get diagnosed with mesothelioma back in12

2003 and 04, if I go forward to say a year like 2025 where13

this curve is at about 20 million, it says theres going to be14

about 20 million -- there are going to be about 20 people.15

So its just scaling things proportional to the16

number of people that will get mesothelioma. So going from 5017

to 20 on this graph is going from for every 50 people that used18

to get mesothelioma Nicholson predicts by that year there will19

only be 20.20

Q So if we superimposed on top of this graph the Nicholson21

incidents curve where the left axis is people, is incidents of22

disease, it would look that exact same slope.23

A Right. It has the exact same shape.24

Q All right. And the blue line you say is taking the -- Im25

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sorry, let me withdraw that. Would you call this a simple1

extrapolation?2

A I wouldnt call this a forecast I mean because youre not3

really looking at whats going on in the underlying data,4

youre just taking an observed eight years of expenditure and5

youre saying Im not trying to understand yet why that6

happened, but if I assume that thats stable and was going to7

get repeated what would I see in the future. I havent done8

the work yet to see if thats stable would it get repeated, but9

if you thought that it was relatively stable and the10

expenditure levels itself is relatively stable, what would you11

expect to see.12

Q So the blue line is taking the lower level of the recent13

tort system settlements and just extrapolating it out along the14

Nicholson curve, is that right?15

A Its really not the lower level, its taking the last16

eight years. So I didnt -- if you notice if you -- its17

actually above every year except the two and its substantially18

above 2006. So actually the amount of the blue bars above the19

line and below perfectly cancel out, in effect. So its20

fitting to that eight-year period.21

Q So in a stable world you would expect a forecast to22

ultimately once the appropriate work is done of nominal tort23

system payments to fall into this realm?24

A So if I had a stable world with a stable inventory every25

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aspect of it was stable, I would expect the tort payments in1

the future, if you were doing this in example of a financial2

reporting context, you would say their tort system payments3

over the next 50 years will probably sum up to most likely 6004

million and Id be really surprised if I got a number higher5

than 800 million given that thats coming off the two highest6

observed years.7

Q And again I think you mentioned this and I think this is8

going to be a constant problem throughout, these are nominal9

numbers and not discounted for present value or the like,10

correct?11

A Correct.12

Q Okay. So once you performed this simple extrapolation and13

you looked at this Ill call it back of the envelope which will14

probably offend you for which I apologize, whats the next15

step?16

A Well the next step, those tell you it should be around 60017

million and not less than 800 million nominal, if the world is18

actually stable. So now the question is lets go look and see19

is -- has that eight years, even though superficially if you20

look at total expenditure its been relatively stable, that21

doesnt necessarily mean that the underlying dynamics are22

stable.23

So I then my next step was to dig down and look at24

the underlying dynamics to see whether or not there was actual25

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stability in the underlying dynamics that lead to the observed1

expenditures or settlement commitments.2

MR. EVERT: Your Honor, may I approach?3


Q Now, Dr. Mullin, I have handed you the Debtors5

Demonstrative D-13 which I know everyone is shocked, it6

discusses an unstable trend which is what you were just talking7

about. So will you tell the Court what this illustrates?8

A This is looking at the propensity to sue the debtors and9

its looking -- so the denominator here is the Nicholson, its10

really the Nicholson forecast of the number of individuals that11

get mesothelioma in a given year, the numerator is the number12

of individuals that named the debtors that year and this is13

filings over incidents.14

And its by calendar year because thats the nature15

in which the Nicholson forecast comes. The Nicholson forecast16

is coming by calendar year and then I did annualize whats17

really been observed in I think 2010.18

But when you look at this graph you see that what you19

may first actually think is a stable trend. You get a nice --20

a linear line fits it actually quite well. So it says that,21

you know, the propensity to sue the debtors has been growing22

and growing at a consistent rate.23

Why I have labeled it as unstable is its clearly not24

sustainable. The propensity to name the debtors or sue the25

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debtors cant continue to grow forever. And what the line is1

intended to illustrate is if you did just blindly extrapolate2

this trend youd get a nonsensical answer. Youre going to3

move to more than 100 percent of the people diagnosed with4

mesothelioma are suing the debtors which doesnt make sense.5

So although there is a trend in the data it cant6

possibly be stable. If it were stable it would mean it would7

continue forever and we know that cant happen. So were going8

to need to understand that better about how -- whats going on9

there and how it affects total payments.10

The other thing that this points out is although the11

number of claims, the propensity to sue the debtor has been12

growing, you see it going from about 25 percent in 2003 to a13

number thats probably a little north of 40 percent or in the14

neighborhood of 40 percent by 2010, we observed that their15

actual settlement commitments werent growing.16

So theres going to be -- theres a little bit of a17

conundrum there in a sense. Youve got to reconcile these two18

things. Theres been relatively stable settlements but an19

increasing number of claimants are naming the debtors. So20

clearly these increasing numbers, theres something thats21

offsetting or youd expect to see the actual tort settlements22

to be rising as the number of claimants rises.23

Q So if I could return to the Debtors Demonstrative Number24

3, Im sorry, Number 11, these are the tort commitments that25

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you were referencing a moment ago?1

A Yes.2

Q And I just want to make sure I follow this point. You3

were surprised to find that with a stable spin year in and year4

out there was an increasing propensity to sue trend? Is that5

what you said?6

A Well not necessarily surprised, but saying this is7

something thats going to need further explanation because if8

the propensity to sue goes from 25 percent to 40 percent9

between 2003 and 2010, wed expect 50 million of expenditure in10

2003 to be 80 million of expenditure in 2010 if these moved11

together.12

So thats -- but we dont see it rising up, we dont13

get that same linear upward trend in total settlement14

commitments so theres got to be more to the story than just15

that as you add more claims, if you double the number of claims16

you double the amount of money. The story cant be that17

simple. These two things contradict that.18

Q In returning to Debtors 13, which is the increase in the19

propensity to sue, it cant continue I think you said in this20

vein forever.21

A No. If we continued this way forever by 2035 we have more22

than 100 percent of the incidents of mesothelioma naming the23

debtors. We dont have 100 percent of the incidents of24

mesothelioma even filing a lawsuit today.25

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MR. EVERT: If I may approach, Your Honor?1

A Thank you.2


Q Do you have plenty of water? Are you okay?4

A Yes, Im fine.5

Q Dr. Mullin, Ive handed you what is Debtors 14, D-14 for6

demonstrative purposes, and if you would tell us what that7

represents.8

A So this is a very similar graph to the previous one, were9

still looking at things in calendar years just to make it10

directly comparable to the last graph and so as opposed to11

looking at the propensity to sue this is looking at the average12

settlement amount.13

So its saying for the claims that were filed in 200314

the average settlement amount was approximately $150,000. For15

the claims as we move forward to the claims filed by 2010 the16

average settlement amount was about $75,000. So weve seen the17

average settlement amount decline as the propensity to sue has18

risen.19

So this may provide us an explanation, we need to do20

more work still at this point, but if youre wondering why is21

it that as the propensity to sue increases we dont see the22

doubling, with the doubling of the propensity to sue in23

settlement payments. At the same time weve been observing an24

offsetting downward trend in the average settlement amount so25

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the value of claims in that sense on average is getting lower.1

Q And I presume you are not forecasting based on this graph2

that at some point the claimants owed the debtors money.3

A No. This is similar to the other graph. The trend,4

although a linear line fits it well for the last eight years,5

if you were to continue that linear trend just as its6

nonsensical to say more than 100 percent of the people are7

going to sue the debtors, I think its equally nonsensical to8

say by 2015 the claimants are going to be paying the debtors.9

Neither of those outcomes makes sense.10

So you know that although theres been a stable trend11

line over the last eight years, you can just on its face12

extrapolating that trend line is wrong.13

Q Now did you find an empirical relationship between the14

last two trends that you showed us the increasing propensity to15

sue and the decreasing settlement amounts?16

A This is a common outcome. In general for the debtors and17

specifically that statistical connection is very, very small.18

Theres a correlation coefficient of about .9 and .9 is -- you19

almost never see anything that high so that --20

Q Tell me what that means. Correlation efficient --21

coefficient .9. Tell me what that means in less than an hour22

and a half.23

A Ill try two short answers and see if these work in24

combination. The first is more statistical which says if you25

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7/29/2019 Bondex Trial Transcript 1

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