A New Jersey bankruptcy judge approved a $535 million deal for Berkshire Hathaway and others to resolve asbestos-injury liabilities tied to a defunct affiliate, rejecting claims the deal negotiators were conflicted.
Judge Michael Kaplan of the U.S. Bankruptcy Court in Trenton, N.J., on Thursday ruled against representatives for asbestos-injury claimants who challenged the proposed settlement between affiliates of Berkshire Hathaway and its former talc supplier Whittaker Clark & Daniels.
The judge said the settlement represents "by far the surest pathway to securing a timely, fair and reasonable recovery for all creditors" and rejected claims that independent directors who hammered out the terms were conflicted due to their business ties to law firm Kirkland & Ellis, Whittaker's bankruptcy counsel.
Whittaker filed for bankruptcy in 2023 to resolve mounting lawsuits from personal-injury claimants who alleged asbestos-containing talc made its way into consumer products like Old Spice powder and Mary Kay cosmetics. Once in bankruptcy, Berkshire negotiated the $535 million settlement with independent directors a Berkshire executive appointed to the Whittaker board.
Representatives for tort claimants alleged the number was too low to compensate current and future asbestos claims and the disinterested directors were conflicted because they received referrals on other matters from Kirkland & Ellis. Companies on the brink of insolvency often appoint independent directors referred by their law firms to handle dealings with its owners and affiliates and mitigate conflict-of-interest concerns.
The Whittaker claimant representatives alleged independent directors generally "are compromised and incentivized by the possibility of future employment to produce an outcome that is favorable to the entity that appointed them," a criticism that has also been leveled in other chapter 11 cases.
But, while Whittaker's directors had received referrals from Kirkland before, Kaplan in his ruling found no evidence of "undue influence over the execution of their duties" or that they were beholden to the firm. The judge said a settlement between Berkshire and Whittaker alone would be viewed as an insider transaction, but the presence of the independent directors had severed the insider ties.
Suzanne Ratcliffe, a lawyer representing mesothelioma victims with claims against Whittaker Clark, said Thursday's ruling is wrong.
"Whittaker Clark & Daniels must be held accountable for poisoning people to death with asbestos in our nation's civil justice system," Ratcliffe said. "Instead, this order blesses a greed-fueled insider 'settlement' between Whittaker and multibillionaires -- including Berkshire Hathaway affiliates -- a settlement which no victim wants or asked for."
Representatives for Whittaker and Kirkland didn't immediately respond to requests for comment.
For more than a century, Whittaker supplied pigments and minerals, including talc, for cosmetic and industrial products. In 2004, the company, then a subsidiary of German railroad operator Deutsche Bahn, sold its operating assets, including its long-held talc distribution assets, to subsidiaries of Brenntag North America. Whittaker then became a shell entity managing legacy asbestos liabilities.
In 2007, Berkshire Hathaway's insurance arm, National Indemnity, acquired Whittaker's equity and assumed its asbestos liabilities, insurance policies, and roughly $129 million in cash from Deutsche Bahn for a nominal $1, court papers show. The acquisition was part of Berkshire's property-casualty insurance business, in which Berkshire invests the premiums until it is required to pay claims.
But a recent surge in lawsuits alleging asbestos exposure through cosmetic talc products has since upended that business model. Berkshire said in 2023 that bankruptcy would provide a fairer and more efficient way of addressing over 1,600 pending talc lawsuits.
The $535 million settlement was negotiated between Whittaker on one side and Brenntag, Deutsche Bahn and Berkshire on the other. The contributing companies agreed to fund the settlement in exchange for being released from asbestos-related liabilities stemming from their past involvement with Whittaker.
Lawyers representing personal-injury claimants have challenged the proposed deal, which they argue undervalues their claims. Their experts estimated the value of claims at as much as $5.3 billion, while Berkshire's experts said the value would be less than $520 million.
In a separate ruling, Judge Kaplan approved Whittaker's $16.5 million environmental settlement with federal and state regulators, clearing a final regulatory hurdle to the company's chapter 11 plan. Funded by National Indemnity, that agreement resolves legacy pollution claims across five sites in California and Montana, including a Superfund site in Billings.
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