A recent ruling by a bankruptcy judge that exposed “double dipping” from a trust and a court has a local attorney calling for more transparency between the two systems set up to compensate people sickened by asbestos.
“The real issue for me is whether the courts will require claimants to file trust forms before trial,” said Brian Huelsmann of HeplerBroom in Edwardsville. “What defendants are looking for is more transparency with trust filings.”
Huelsmann was reacting to a decision out of the Western District of North Carolina, in which U.S. District Judge George Hodges found a “startling pattern of misrepresentation” by plaintiffs’ attorneys in manipulating evidence of exposure as it pursued Garlock Sealing Technologies, first in court and then in bankruptcy proceedings.
Plaintiffs wanted to settle Garlock’s liability in bankruptcy for up to $1.3 billion; Garlock valued its liability at $125 million. Hodges found Garlock’s figure to be a reliable estimation.
Huelsmann said efforts to combat manipulation in asbestos cases should remain focused on breaking plaintiffs’ habit of filing bankruptcy claims after trial. That, he said, is the real threat to transparency in asbestos litigation.
By failing to develop trust claim filing requirements, plaintiffs can introduce different exposure theories in court and then in bankruptcy proceedings, he said.
In Garlock’s case, Judge Hodges allowed Garlock to initiate full discovery into the claims of 15 individuals and partial discovery into hundreds more.
Hodges found that plaintiffs’ lawyers withheld evidence of asbestos exposure to products other than Garlock’s gaskets and delayed filing claims with bankruptcy trusts until after obtaining “inflated” recoveries from Garlock in court.
“It appears certain that more extensive discovery would show more extensive abuse,” Hodges stated in his Jan. 10 ruling. “But that is not necessary because the startling pattern of misrepresentation that has been shown is sufficiently persuasive.”
He continued, “While it is not suppression of evidence for a plaintiff to be unable to identify exposures, it is suppression of evidence for a plaintiff to be unable to identify exposure in the tort case, but then later to be able to identify it in Trust claims. It is that practice that prejudiced Garlock in the tort system.”
Darren McKinney, communications director at the American Tort Reform Association, said Hodge’s actions should encourage other judges to push claimants to disclose where else they have sought compensation, arguing that it is inappropriate for plaintiffs to come into court blaming a select few defendants only to run off and seek payment from trusts they had denied association with during court proceedings.
“It’s perfectly reasonable for a judge to want to know future plans to file trust claims,” McKinney said. “Let’s hope other bankruptcy judges start wielding it in their own courtrooms against the fraudsters. There’s plenty of them, the fraudsters, that is.”
McKinney said that while the Garlock ruling was a positive result for asbestos defendants everywhere, he is still skeptical that it is enough to have an impact in the nation’s epicenter of asbestos litigation - Madison County.
“One would like to think that the Garlock finding would inspire judges everywhere, at every level throughout the county, to bring a healthy degree of skepticism and scrutiny to asbestos claims,” McKinney said.
He said he is not convinced there is an “appetite” for reform in Madison County where the number of new filings continues to increase, and where the vast majority of claimants are from out-of-state.
Asbestos filings in Madison County in 2013 broke yet another record with a total of 1,678 new cases, eclipsing a record of 1,563 set in 2012.
A trend that had emerged in Madison County’s asbestos docket in 2012 was a surge in lung cancer cases over mesothelioma cases.
At least 650 of the new cases in 2013 were lung cancer cases that Huelsmann’s firm is handling.
He also pointed out that Hodge's recent ruling was not the first time a judge had approved access to bankruptcy trust forms. In fact, he said, an Illinois appellate court ruled more than 20 years ago that discovery of trusts was appropriate.
“I don’t know if it’s a hot button issue,” Huelsmann said. “The discoverability aspect has already been ruled on.”
He pointed to a First District Appellate Court opinion involving Owens-Corning Fiberglass Corporation, in which the company had sought discovery of the plaintiff’s proof of claim (POC) form filed with the Johns-Manville Personal Injury Trust.
The plaintiff’s attorney refused on the grounds that it was protected by the attorney-client privilege and the work product doctrine. The plaintiff also argued that evidence of exposure was not relevant.
“While plaintiff may be correct in concluding that the form is inadmissible, plaintiff does not address whether the POC form is discoverable,” Justice Jill McNulty wrote in 1991. “Therefore, [Owens-Corning] should have been given the opportunity to discover whether the POC form did indeed contain facts either disputed or adverse to [Owens-Corning’s] interest or incidental to the settlement discussions.”
Huelsmann said he has used McNulty’s “Skonberg” ruling in trial cases in the past to “force” judges to use claims forms that have been submitted to bankruptcy trusts.
In fact, Huelsmann said his firm has been successful in getting bankruptcy trust claim forms admitted into evidence in asbestos cases before, including a May 2005 asbestos trial in Madison County.
In that case, plaintiff Willard King blamed defendants Bondex, Georgia Pacific, John Crane, RPM Inc. and Lynn Tractor and Equipment Company for his mesothelioma.
King claimed he was contaminated by working with asbestos-containing products when repairing farm equipment and cars from 1950 through 1987.
A Madison County jury ruled in his favor after approximately nine hours of deliberation in may 2005 with a fairly meager asbestos verdict of $500,000 and dismissed Georgia Pacific completely.
Why not investigate?
ATRA’s McKinney said the thing he is most concerned about in the wake of Hodges’ decision is why the Justice Department hasn’t launched an investigation into “fraudsters,” saying the evidence is “hiding in plain sight.”
He said the Garlock decision brought to light a rampant problem with double dipping thanks to “gluttons at the trough” in asbestos litigation.
He also said that courts can be generous to those with legitimate claims while still “demanding that their lawyers not lie to trust funds.”
“Ultimately, it’s harmful to those who are sickened by asbestos, because if the double dipping goes on as it has rampantly in the past, it’s reasonable to assume at some point that even the bankruptcy trusts run out of money,” he said.
“It’s not beyond imagination to foresee a date in the future that those with righteous and legitimate claims will find that the pot, that was once available to them, has dried up.”