In January, a federal bankruptcy judge in Charlotte issued what could be a game-changing decision in the murky world of asbestos litigation. The judge slashed what a manufacturer owes asbestos victims by roughly $1 billion after finding that the victims' lawyers abused the system.
If you watch TV, you've probably seen a commercial like this.
http://www.youtube.com/watch?v=ojldQBKPavE
Mesothelioma is a rare type of cancer. It's mainly caused by inhaling asbestos, which are minerals many companies used in insulation and other products.
Starting in the 1980s, victims and their lawyers have sued some of those companies into bankruptcy. According to a government report, asbestos lawsuits have now played a role in about 100 companies going bankrupt.
One of those is a manufacturer of gaskets called Garlock. Its parent company, EnPro, is based in Charlotte.
In New York, Cardozo Law School Professor Lester Brickman has been researching asbestos litigation for about 25 years, and he testified for Garlock. He said its bankruptcy case could have huge implications.
“It's laid bare the massive fraud that is routinely practiced in mesothelioma litigation,” he said.
The judge in this case, George Hodges, detailed the shenanigans some victims' lawyers have pulled.
Garlock used to make gaskets with asbestos because it was useful for sealing pipes that move hot liquids. You could find its gaskets on Navy ships, at chemical plants and in other work sites.
In his order, Judge Hodges wrote about a Texas case where a plaintiff said his only exposure to asbestos came from Garlock's gaskets.
“His responses to interrogatories disclosed no other product to which he was exposed,” Hodges wrote. “The plaintiff specifically denied any knowledge of the name ‘Babcock & Wilcox’ and his attorneys represented to the jury that there was no evidence that his injury was caused by exposure to Owens Corning insulation,” which also made asbestos products.
But it turns out that the day before that denial, the plaintiff's lawyers filed a claim against Babcock & Wilcox.
“Also, after the verdict, his lawyers filed a claim with the Owens Corning Trust,” Hodges continued. “Both claims were paid – upon the representation that the plaintiff had handled raw asbestos fibers and fabricated asbestos products from raw asbestos on a regular basis.”
Garlock had a suspicion this kind of thing happened a lot, which is why it asked Judge Hodges for permission to reexamine some of its old settlements. Rick Magee represents the company.
“We were able to demonstrate in each and every one of those 15 cases that there was extensive suppression of exposure evidence,” he said.
And in doing that, Garlock convinced Judge Hodges to dramatically reduce the estimate for how much the company still owes victims. The victims' lawyers argued it should be about $1 billion based on Garlock's past settlements.
But Hodges wrote that estimate “is infected with the impropriety of some law firms.”
The head of one of those firms disagrees.
“There are some of those cases that involve my firm,” said Peter Kraus, managing partner of Waters & Kraus in Dallas, Texas. “So I know for a fact from those cases that the judge’s description of what happened is simply not correct.”
To understand his argument, you need to know a little about how bankrupt companies compensate asbestos victims. After going bankrupt, the companies set up trusts to pay out claims. (That's what Garlock is in the process of doing now.)
But Kraus said filing a claim with that trust does not mean you're actually blaming the company that started it – even though that sounds counterintuitive.
“You simply submit claims pursuant to the rules,” he said. “If there's a trust set up and it allows your client to get money simply because he worked somewhere, that's not the same as evidence that he was exposed to that product. That's the heart of the dispute here.”
Kraus also said Garlock cherry-picked the 15 cases the judge wrote about. He said there's no way to know if they're representative of Garlock's hundreds of thousands of other settlements.
That argument reminds folks at the U.S. Chamber of Commerce of this scene from The Naked Gun.
http://www.youtube.com/watch?v=5NNOrp_83RU
Here's Harold Kim, executive vice president of the Chamber's Institute for Legal Reform.
“When you start building the case, when you start seeing more and more of these instances, you have to really question whether this is an outlier or not,” he said.
Judges in Delaware, Ohio and Virginia have also noted outright lying. And Kim said there would be more examples if the trust system was more transparent.
The chamber is lobbying for a bill that would add transparency. It passed the House but stalled in the Senate.
A lawyer involved with the trusts named Elihu Inselbuch testified before Congress against that bill. He said the fact that judges are catching abuse shows the current system works. And he tore into the companies that used to make asbestos products.
“This is an industry that not only hid the facts of asbestos exposure but positively concealed it for 40 years, so that we now have hundreds of thousands of people dying from exposure to asbestos," he testified. "And they want to talk about trust transparency?"
In fact, about 2,600 people die from mesothelioma every year, according to the Centers for Disease Control and Prevention. People will keep dying from it over the next few decades because of how long it can take to develop after asbestos exposure.
And though Judge Hodges reduced Garlock's liability by about $1 billion, he still estimated that Garlock owes victims about $125 million. The victims' lawyers will likely challenge that estimate.
In the meantime, Garlock is filing its own lawsuits. The company has filed suits against six law firms for the types of practices it uncovered in its bankruptcy case.