The shift of major companies named in asbestos lawsuits seeking bankruptcy protection in federal courts has left small companies as very big targets for civil lawsuits in state court.
The establishment of the federal trusts has, in essence, created two playing fields for asbestos lawsuits: one in federal bankruptcy court and another in state civil court.
Plaintiff lawyers have maximized the potential of settlements by figuring out how to receive settlement awards from both on behalf of their clients, legal professionals say.
"Plaintiffs often 'double dip' by filing claims with the trusts and against civil defendants in the tort system," Washington-based corporate defense attorney Mark Behrens said. "There have been reports that some plaintiffs' lawyers delay the filing of claims with trusts until related civil actions have concluded."
The result has helped turn some defendants against each other, namely those with bankruptcy protection and those who are not having their claims properly covered by the trusts.
A case filed in a Delaware federal bankruptcy court in March pits one asbestos defendant against another. The case, Garlock Sealing Technologies v. Owens Corning, offers a glimpse at an emerging trend in asbestos litigation that could increase the number of businesses crippled by asbestos lawsuits.
Garlock is a subsidiary corporation of EnPro Industries, which was formed in 2002 as a new merger company between two iconic American manufacturing companies that date back to the 19th century, BF Goodrich, makers of Goodrich tires, and Coltec Industries, the company founded as the maker of the Colt handgun.
A comparatively small company that manufactures industrial gaskets, Garlock does not enjoy the same prominence.
According to information about the company, EnPro recognized the threat of asbestos lawsuits at its formation, particularly with Garlock.
"The one glaring weakness of the newly independent company was its exposure to asbestos lawsuits stemming from Garlock Sealing Technologies' use of asbestos in its products until 2001," a fact-sheet about the company on a business Web site stated.
Despite the concern, the company felt the potential liability could be controlled because, "the gaskets containing asbestos were encapsulated and were primarily purchased by the U.S. Navy and large petrochemical companies, customers who understood the risks involved," the Web site stated.
Now, several years later, Garlock's ability to remain solvent rests on its most recent litigation, where left on the outside looking in during the bankruptcy proceedings of Owens Corning, the company chose to sue to protect itself from further lawsuits.
Garlock took a mesothelioma case to trial in Texas back in 2005, but as the jury went into deliberations the company settled for an undisclosed amount for twice what it refused to pay leading up the trial.
"The fact that Garlock settled prior to the jury verdict underscores the strength of the evidence against Garlock and Garlock's recognition of the weakness of their Chrysotile defense," said Christian Hartley of Richardson Patrick Westbrook and Brickman.
Legal strategies since suggest the legal defeat amounted to a wake-up call for the gasket makers.
A defense attorney in Chicago said the Garlock case sheds light on the problems of bankruptcy trusts that allow major companies to remove themselves from lawsuits at the state level, leaving others who would seemingly have a small portion of the liability solely responsible for the settlement or financial award.
"In a tort case in most states, if you are going to trial with 10 defendants, you get to point at the other nine to share the blame," he said. "But if six of those are sitting behind a bankruptcy trust injunction, the other four are left holding the bag."
Garlock, tired of being the one left holding the bag, is now taking legal aim at the trusts. Court documents in its case against Owens Corning, one of two such cases Garlock recently filed, explain the problem.
"For nearly a year, the Trust has refused to process three such claims brought by Garlock, thereby leaving Garlock's claims in state of limbo not permitted by the Plan Documents," the document states.
The court documents reveal the hit-and-miss nature of having some defendants in federal bankruptcy trusts while others are being sued at the state level, often by the same plaintiffs.
"Although individual plaintiffs could attempt to hold any single defendant or group of defendants responsible for such plaintiff's injuries, through these cross-claims for contribution or indemnity, the targeted defendants could join other companies as co-defendants to ensure that each company that causes the plaintiffs would pay its share," the court filing states.
As authors William P. Shelley, Jacob C. Cohn & Joseph A. Arnold explained, the multifront attack of plaintiff attorneys have proven effective.
"A clear goal of such efforts is to hamper the ability of defendants in the tort system to obtain judgment reductions, credits, and/or offsets that they should in all fairness receive in light of the relative culpability of the bankrupt entities and the payments being made to victims by their trusts," the authors stated.
Behrens said the trusts are created under the federal bankruptcy code so they operate outside of the state court civil system. The payment of claims under trusts is governed by Trust Distribution Procedures.
"Each TDP has a schedule of diseases, along with exposure and medical criteria," Behrens said, "Once a claimant establishes that he is a trust beneficiary by satisfying the TDP's disease and exposure criteria, the claimant is entitled to have his claim valued at a pre-established presumptive compensation amount. The dynamics of the bankruptcy process tend to lead to trust agreements and TDPs that are largely written by asbestos claimants' counsel."
Defense attorneys say the process of receiving a claim through a trust is far easier than trying a case in court. "It's really good money and all you have to do is fill out some paperwork and provide some medical docs," said one attorney who did not wish to be named.
And with roughly $40 billion in assets now believed to be set aside in established asbestos trusts, according to the latest studies, there is plenty of money to be taken.
But Behrens points out plaintiffs' attorneys are not forced to settle just for the money paid by asbestos courts, when defendants like Garlock can still be sued in state court.
"Asbestos plaintiffs typically do not try to bypass the courts to file against asbestos trusts," he said. "That would suggest plaintiffs prefer trust money over money that could be obtained in civil suits."
With Garlock's cases pending, the outcome could determine how much companies on the outside of the trusts will participate in the bankruptcy proceedings in the future, and perhaps how many more companies will soon follow the lead of those already seeking bankruptcy protection.
For such a massive impact on American corporations and with billions of dollars at stake, amazingly little attention is being paid to it, the Chicago defense attorney said. Likewise, the fallout could spill over into other high profile companies, like automakers possibly facing bankruptcy protection, he said.
"It's just a simpler way," he said of the trusts, "and that's how they have done it with the last 60 or so bankruptcies when nobody was paying attention. But if you are going say the other defendants can't sue, then you've changed the hell out of the state court tort system. How far are we going to let bankruptcy law go?"