A business consultant who helps companies manage their product liabilities is calling for asbestos defendants to collaborate more in order to achieve better equilibrium with plaintiffs whose litigation risks pale in comparison.
Washington-based consulting firm KCIC founder Jonathan Terrell wrote a piece for In-House Defense Quarterly magazine recently suggesting that asbestos defendants keep bankrupt companies in evidence, seek standing in bankruptcy proceedings and share settlement values, verdict information and other data.
"At the most basic level, knowledge is power, and power is about forcing lower settlement values for all defendants through collective action, rather than continuing to experience settlement inflation as a result of the power imbalance in the tort system," Terrell wrote in the article titled "Survival or Ruin in the Balance: Defendant Collaboration."
KCIC estimates that 10,000 unique companies were named in asbestos suits last year with an average of 66 companies being named per lawsuit. It says that more than 4,600 lawsuits were filed in courts across the country in 2016 - with Madison County hosting the most new filings of any one court, as it has for many years, at 1,299.
"...[S]imple math tells us that over 300,000 actions were required to answer these complaints," Terrell wrote. "Each of those companies named on each of those complaints, with few exceptions, must engage counsel, answer the complaint, and proceed ith litigation through dismissal, settlement or trial. This represents a major tax on the vitality of the U.S. economy and a major distraction, too."
Terrell wrote that it isn't difficult for plaintiffs to name multiple defendants in lawsuits as long as they satisfy a court's procedural rules. And while plaintiffs face "very little" downside to naming dozens of companies in their complaints, the downside for a defendant proceeding to trial in any given case can be "profound."
"An adverse verdict may forever make them a target defendant and increase their settlement values," he wrote. "Corporate survival can be on the line. And defendants often feel the pressure from their insurers too, who may encourage them to take a case to trial."
"Given this dynamic, it is not surprising that most defendant companies, most of the time, would prefer to pay something to get dismissed from the case rather than gear up and go to trial. This power imbalance is a racket, a shakedown, that has little to do with justice and everything to do with a parasitic business practice."
Terrell believes that it is "always" in the best interest of all solvent defendants to keep bankrupt companies in evidence, whereas it is "almost never" in plaintiff counsels' interests to do so.
He wrote that plaintiffs benefit from separate recovery systems that offer the opportunity to "double dip" - a type of fraud that was brought to light in Garlock Sealing Technologies bankruptcy proceedings at the Western District of North Carolina.
Plaintiffs "harvest as many settlement dollars as possible from solvent defendants, then turn to the post-bankruptcy trusts for a double recovery," Terrell wrote.
A report produced by KCIC earlier this year showed how lawsuits against a big defendant that makes drywall, joint compounds and cements - Kaiser Gypsum - dropped signficantly once it sought bankruptcy protection in September 2016.
For instance, it showed that in Madison County 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. In the third quarter of 2016 in Madison County, it showed the rate dropped to 29 percent.
The report concluded that the disappearance of exposure evidence to KG products, now that it's in bankruptcy, puts pressure on solvent companies to unfairly pay larger sums in court case settlement.
Keeping exposure evidence of bankrupt companies in court can be done by sharing valuable pictures of products of bankrupt companies, acquired through years of litigation, which could help other defendants during court depositions, Terrell suggested.
"If it can be shown that the product of the bankrupt defendant was located in the part of a site where a plaintiff worked, then there is an opportunity for a productive line of questioning," he wrote. "Likewise, putting product catalogues, promotional materials, as well as interrogatories and deposition transcripts of earlier cases involving the bankrupt defendant into the hands of defense counsel is an important and obvious way in which solvent defendant companies can take back a little of the tort system power imbalance that is tilted towards plaintiffs."
Regarding bankruptcy proceedings, plaintiffs are "always" the more powerful party given their historic standing in cases and bankruptcy trusts, he wrote, but for balance solvent companies should also seek standing. Even if it's not possible to create official committees within trusts, "unofficial" committees should be formed "to explain to the court the real effects of the bankruptcy on remaining solvent defendants and to be a strong voice in the drafting of TDPs (Trust Distribution Procedures)."
He claims that the asbestos bankruptcy process has made a "mockery" of a "well-established" corporate dynamic that would pay a genuinely sick plaintiff "significant settlement dollars" if it was clear that its products made that person sick.
He wrote that from 2006 through 2012, asbestos bankruptcy trust assets grew by more than $27 billion and paid out more than $15 billion. While there were approximately 5,000 new suits in the tort system last year, the number of claims against some of the larger trusts was "multiple times" that number.
For instance, the Manville Personal Injury Settlement Trust received almost 17,000 claims and the Combustion Engineering 524(g) Asbestos PI Trust received more than 30,000, he wrote.
"There is an alarming disparity between the claims practices inside and outside the tort system, which prejudice genuinely sick plaintiffs, and benefit plaintiffs’ counsel," he wrote.
Terrell also called for sharing claim values to help defendants in estimating values of their pending cases, and negotiating settlements.
"Really valuable, but extremely elusive, information is knowing the full value of, say, a mesothelioma claim and being able to compare that value in Illinois versus New York, for example," he wrote. "The plaintiffs’ bar, by definition, has this data. The defense bar does not."
He wrote that a "whack a mole" analogy also could apply if defendants collaborate more.
"If only one defendant is trying to drive settlements down, the plaintiffs’ counsel can litigate, and the threat of taking a verdict can be used to bang the defendant down," he wrote. "If every defendant is collectively pushing for lower settlements values, plaintiffs’ counsel no longer has the power of threatening individual companies with a verdict. Just like when multiple moles in the game come up, there is no way you can hit all of them at once."