A consulting firm that analyzes asbestos litigation across the U.S. has found that as soon as Kaiser Gypsum (KG) sought bankruptcy protection in September 2016, the number of lawsuits filed against this "major" defendant dropped signficantly.
The problem, according to Washington-based KCIC founder Jonathan Terrell, is that as evidence of exposure to KG products - drywall, joint compounds and cements - disappears from the tort system pressure mounts on solvent defendants to pay larger sums in court case settlement.
In Madison County, the nation's busiest asbestos court, the rate of filings naming KG dropped to 7 percent in the fourth quarter of 2016, after sustaining a rate between 40 and 46 percent in 2015 through the second quarter of 2016, the report states.
In the third quarter of 2016 in Madison County, it shows the rate dropped to 29 percent.
KCIC estimates that it reviews 90 percent of all asbestos lawsuits filed in the U.S.
Its analysis shows that other top jurisdictions in which KG is named as a major defendant produced similarly significant reductions in the rate of filings after the company filed for bankruptcy.
In Baltimore City, Md., where the rate of filing against KG had been the highest, for instance, the number of suits filed in the fourth quarter of 2016 fell to zero. In 2015 through the third quarter of 2015 the rate of filing there ranged between 46 and 79 percent.
Terrell wrote earlier this year that an ad hoc committee of plaintiff firms was formed prior to KG's bankruptcy filing to "engage in discussions with the Debtors regarding the terms of a consensual plan of reorganization," also known as a "pre-packed" bankruptcy.
"The notion that plaintiff firms, largely responsible for KG’s bankruptcy, should have a seat at the table is a little jarring, but such is the nature of the bankruptcy process," he wrote.
He went on to assert that keeping bankrupt companies in evidence in the tort system is not in the financial interest of plaintiffs.
"Firstly, as was well established in the Garlock case, plaintiffs have a potential for double recovery by obtaining full relief from solvent defendants in the tort system and then later making claims to the various post-bankruptcy trusts," he wrote.
"More significantly, if evidence is kept in the tort system, they face the considerable downside of a bankrupt company being awarded a share on the verdict sheet, thereby exposing the plaintiff and his counsel to the financial consequences of a missing share."
KCIC also reviewed the percentage of suits against KG filed by attorneys on the plaintiffs' ad hoc committee which shows a decline in filings at the end of 2015 and then "plummeting" as the bankruptcy was made public, its report states.
"And while KG is protected by Chapter 11 from actual litigation, there is nothing preventing plaintiffs’ counsel from continuing to name them on complaints," the report states. "If KG was named so frequently in the past, why the sudden change? Suspicious minds could be forgiven for thinking of the self-interest of the plaintiffs’ bar."
He wrote that it is unsurprising that exposure evidence of bankrupt companies "rapidly disappears" from the tort system given the financial incentives to keep it out.