The case famous for helping crack open some of the secrets of the asbestos litigation business has reached a settlement, which will apparently include a settlement (probably without admission of wrongdoing) of civil RICO claims against several law firms. The revelations in the Garlock bankruptcy helped to bolster evidence that “some victims and their lawyers tell one story in one venue and another someplace else to ‘double dip’ the system” in cases against separate defendants. [Sara Warner, National Courts Monitor/Huffington Post; earlier]
In 1994 “Congress fiddled with the bankruptcy code in a way that allowed trial lawyers to exploit asbestos bankruptcies. It works like this: In a normal bankruptcy, a creditor’s voting weight is mainly determined by how much he’s owed. But thanks to the 1994 change, all asbestos ‘creditors’ (claimants) are treated equally.” A dying cancer patient gets the same vote as someone with no detectible health impairment at all. “It didn’t take long for tort lawyers to figure out how to game this system. The leading asbestos law firms team up and pool their unimpaired plaintiffs (who each get a vote), draw up a plan that gives the bulk of the money to their clients, and then outvote the other creditors.” Once in control, the lawyers can begin in effect running the affairs of the company in ways that provide them with further benefits, including cutting themselves large fees for their administrative and dealmaking services. (“The latest asbestos scam” (editorial), WSJ, Jun. 1)($$) See also Mar. 15-16, 2003.
For well over a decade it’s been apparent that the distinctive arrangements by which asbestos plaintiff’s lawyers acquire control of the bankrupt remains of defendant corporations they’ve sued, and then exercise control over those firms’ claims, disbursements, and general management, is fraught with self-dealing and sometimes fraud, ranging from the charging of unnaturally high fees to the concealment of double- and triple-dipping by claimants. Business interests have pursued a campaign in the states and Congress to require more transparency and better judicial oversight of asbestos bankruptcy trusts. Now they may have a powerful ally indeed in the federal government, which has weighed in with an early statement of interest in one such bankruptcy to insist on better controls against fraud and abuse. Its standing for such an intervention arises in part from its role as Medicare and Medicaid payor (entitled by law to recoup some health-related outlays) rather than merely from any interest it might have in heading off fraud generally. [Daniel Fisher, Forbes; Daniel Gill, Bloomberg Law] Fisher:
In the Trump administration, at least, the government will no longer look the other way as asbestos lawyers negotiate lenient terms that make it easy for their current clients to get money at the expense of future claimants and federal entitlement programs….
The government’s unusually blunt statement of interest in the Kaiser Gypsum bankruptcy, long before any plan of reorganization has been approved, warns lawyers against including terms that make it hard to ferret out fraud and abuse, including confidentiality requirements that make it impossible to determine how much claimants have been paid and the basis for their claims….
The Justice Department also warned it will be looking for excessive fees and may not allow claimants to deduct those fees from reimbursement due the government for Medicare and Medicaid expenses.
Sequel: Feds object to trustee candidate in Duro Dyne bankruptcy.
North Dakota and Mississippi have become the third and fourth states to enact laws requiring more transparency of the trusts formed to administer companies declaring bankruptcy amid asbestos litigation [Sara Warner, Huffington Post] “With Obama’s veto threat gone, asbestos ‘double-dipping’ bill reintroduced” [Jessica Karmasek, Legal NewsLine] “State AGs Probe Asbestos Bankruptcy Trusts To Recover Medicare Payments” [Daniel Fisher] And per a paper from the U.S. Chamber, Ohio’s pioneering asbestos claim transparency law is working well [Institute for Legal Reform]
- Investigation of asbestos claiming in Hampton Roads, Virginia, a major center of such litigation, finds plenty of double-dipping and related problems [Chamber Institute for Legal Reform; Richard Berman, Washington Times]
- “The Year Ahead: Will Trump Tackle Asbestos Litigation Scandals?” [Sara Warner, Huffington Post]
- “Asbestos loss projection now $100 billion for US carriers: Best” [Insurance Insider]
- “Sheldon Silver left legacy of high awards in asbestos suits against city” [New York Post]
- 10+ year smoker who contracted lung cancer sues 199 defendants citing asbestos exposure [West Virginia Record]
- Coming, new documentary: “UnSettled: Inside the Strange World of Asbestos Lawsuits, a film by award winning director Paul Johnson.” [site, Madison County Record]
What percent of the dollar value demanded in asbestos litigation these days is grounded in deceitful or duplicative claims practices? Would 90 percent be an unreasonable guess? “A bankruptcy judge slashed by 90 percent the amount gasket manufacturer Garlock Sealing Technologies owes asbestos plaintiffs. … The judge cited the practice of plaintiff lawyers [of hiding] evidence their clients were exposed to products made by other companies, both by coaching their clients to deny exposure and by failing to disclose claims they made in other cases.” [Daniel Fisher/Forbes and followup and related, Joe Nocera/New York Times, Paul Barrett, Bloomberg Business Week, Charlotte Observer, order at TortsProf] On the patterns of multiple dipping exposed by Judge Janis Graham Jack in 2005 litigation, see Jim Copland’s summary here. I wrote about the coaching of asbestos claimants to “remember” working with certain products and not others in my 2004 book The Rule of Lawyers and in this earlier Reason column. More: Richard Faulk, WLF.
An expert witness testifying on behalf of Garlock Sealing Technologies, a maker of gaskets and seals, says the company has already paid at least $1.3 billion in damages to asbestos claimants. The company is telling a bankruptcy court that its remaining liability amounts to a mere $125 million, but lawyers for claimants say that’s a pipe dream and that the actual figure is ten times that or more. The case offers a window into some economic dimensions of asbestos litigation. [Charlotte Observer, Chamber-backed Legal NewsLine] A judge has declined to allow reporters access to some of the proceedings, including portions of testimony by Cardozo professor Lester Brickman outlining the role of what he says is pervasive fraud and double-claiming in asbestos claims. [LNL]
It’s behind a paywall, but TortsProf has a few highlights. Some lawyers are battling to stave off transparency that could catch out counsel and clients who tell inconsistent stories from one case to the next in the course of squeezing maximum payouts from bankruptcy trusts set up to handle claims against asbestos defendants; the trusts themselves have extensive managerial ties to leading plaintiff’s-side firms.
Asbestos litigation continued to grow during the 1980s: by 1992, fully 100,000 claims had been resolved, but another 100,000, yet unresolved, had been filed.
A novel means of processing asbestos claims was initiated in 1988, when the Johns-Manville corporation emerged from bankruptcy and established the Manville Personal Injury Settlement Trust, the first “bankruptcy trust” set up to pay out money to asbestos claimants. Unfortunately, plaintiffs’ attorneys controlled the trust’s claimants committee and set up procedures for the trust that were advantageous to themselves, rather than potential claimants. The trust rules minimized requirements of proof of actual injury or causation (exposure to Johns-Manville products). The trust thus paid out a lot of money quickly to the attorneys, all the while exhausting its funds for potential future claimants.
In just its first nine months of operation, the trust paid out some $500 million to 12,600 claimants — and by the end of 1989, 89,000 more claimants were outstanding. Eventually, the trust had to sharply curtail payments to claimants — to 10 percent in 1995, and 5 percent in 2001. Injured claimants were literally getting a nickel on the dollar. “As of June 30, 2006, the trust had received more than 773,000 claims and paid out about $3.4 billion–just $4,400 per claimant.”
Lawsuits have been filed for years blaming automakers for exposure to asbestos found in brake pads and other auto parts, but the volume of such litigation appears to be sharply increasing. Between February 2002 and February 2003 the number of cases filed against Ford nearly doubled, from 25,000 to 41,500. “In a filing with the SEC, Ford said that it is facing a rise in lawsuits as the original manufacturers of the components have gone bankrupt over the past several years. Ford’s report said, ‘In most asbestos litigation, we are not the sole defendant. We believe we are being more aggressively targeted in asbestos suits because many previously targeted companies have filed for bankruptcy.'” (Robert Lane, “Asbestos Suits Costing Ford As Others Go Broke”, Blue Oval News, Apr. 14; Ed Garsten, “Automakers see asbestos lawsuits rise”, Detroit News, Mar. 21).