Garlock case serves as backdrop for ABA panel on asbestos trust transparency

By Bethany Krajelis | Oct 14, 2014


One thing that appears to be clear from the Garlock Sealing Technologies bankruptcy proceedings is the debate over transparency in the asbestos trust system is far from over.

The case served as the backdrop for a panel discussion the American Bar Association’s Business Law Section put on Friday during the National Conference of Bankruptcy Judges’ annual meeting, which took place Wednesday through Saturday in Chicago.

Moderated by retired judge Judith K. Fitzgerald, who presided over Bondex’s bankruptcy proceedings in Delaware, the panel provided background on the creation of asbestos trusts and legislative efforts to prevent so-called “double-dipping,” as well as a spirited debate that pitted an economist against an attorney involved in the pending Garlock matter.

Speaking from the perspective of defendants and insurers, Charles H. Mullin, who provides advice and expert analysis on liability and damage issues for Bates White in Washington D.C., said the issue of transparency in asbestos trusts has evolved over time, with Garlock illustrating that more is needed in order to curb abuse of the system.

Trevor Swett III, who serves on the legal team representing the Official Committee of Asbestos Personal Injury Claimants in the Garlock matter, however, said “trust transparency is a buzzword” created to cover up the legislative strategy of insurers to rewrite laws in the tort system to favor their side.

While Swett, an attorney with Caplin & Drysdale in Washington D.C., was limited on what he could say about Garlock given his involvement in the case pending in North Carolina's bankruptcy court, he reminded Mullin, as well as the dozen or so attendants of Friday’s panel discussion, that “it ain’t over folks.”

Swett said the committee’s motion to reopen the record of last year’s estimation proceeding remains pending before U.S. Bankruptcy Judge George Hodges, who in January estimated Garlock’s liability at $125 million, a fraction of the $1 billion-plus figure plaintiffs’ attorneys wanted the company to put in a trust for current and future claimants.

According to a release on Bates White’s website, Hodges adopted the liability estimate that Mullin’s colleague, Charles Bates, provided in testimony.

Plaintiffs’ attorneys based their billion-dollar liability estimate on the settlement history of Garlock, which claimed that figure was not reliable because plaintiffs’ attorneys had withheld exposure evidence in previous cases to maximize recovery against it.

After allowing full discovery on 15 cases that Garlock had settled, Hodges determined the evidence showed plaintiffs’ attorneys had in fact withheld evidence of asbestos exposure to products made by companies other than Garlock in all 15 sample cases.

“It appears certain that more extensive discovery would show more extensive abuse,” Hodges wrote in his January ruling. “But that is not necessary because the startling pattern of misrepresentation that has been shown is sufficiently persuasive.”

The committee, however, contends Garlock presented false testimony during the estimation hearing that Hodges used to reach his ruling. It wants to reopen last year’s proceeding, which was closed to the public and media, a move that spurred Legal Newsline to ask the court to unseal the hearing’s record.

Joined by other asbestos defendant companies, Legal Newsline, a publication that belongs to the Record family of publications owned by the Chamber of Commerce's Institute for Legal Reform, won its legal battle in July, when U.S. District Judge Max O. Cogburn Jr. determined the evidence should never have been sealed.

The unsealing process is ongoing as motions to seal and reopen the proceeding have been filed.  Last month, the debtors filed the first wave of documents under the unsealing order, including a joint list of sealed materials not subject to seal.

During Friday’s ABA panel, Mullin said the reason why trust transparency has evolved over time is because the nature of testimony in asbestos cases has changed.

In the past, he said, plaintiffs used to remember the brand names, manufacturers and locations of their exposure to asbestos-laden products, providing defendant companies the information they needed to pass the blame to others “on a silver platter.”

But, now that plaintiffs apparently can’t seem to remember these types of details, Mullin said they can “game the system” by essentially splitting a single cause of action into two and double-dipping their recovery in court system and asbestos trust system.

Swett, however, called this a “contrived and bogus issue.”

Pointing to websites created by asbestos trusts to provide potential claimants information about claim filing procedures, payouts and lists of approved site, Swett questioned why litigating defendants don’t provide the same type of transparency.

He said excluding discovery, it is defendants in the tort system that lack transparency, not trusts. Being a settling defendant in the court system has consequences, Swett said, explaining a settling defendant, for instance, can’t seek contribution from a trust.

“This is not a gaming the system,” he said. “This is the system.”

As such, he said double-dipping in the context of asbestos claims is also just another buzz word. He said when a company settles, it is settling its exposure liability and therefore, a plaintiff's recovery from a trust as well can't be considered double dipping because trusts don’t pay out a settling defendant’s liability.

While Swett alleges insurers created the idea that transparency is lacking in the asbestos trust system, Mullin said the Garlock case shows that's just not the case.

Hodges, Mullin said, saw the discovery and determined there were a sufficient number of examples showing Garlock had been lied to by plaintiffs’ attorneys, who, for example, said in court their client couldn’t remember the type of insulation he were exposed to, but then named the brand when filing a claim with a trust.

“It’s that inconsistency” and the uncertainty of how often it occurs that warrants concerns over transparency in trusts, Mullin said, explaining that the discovery in just 15 Garlock cases was enough for a judge to determine its settlement history was unreliable.

Saying that the committee’s motion to reopen the estimation proceeding hasn’t been heard or ruled on yet, Swett said everyone should “wait and see what happens then.”

Furthering stressing the difference between litigating defendants and asbestos trusts, Swett said that plaintiffs who worked at a facility listed on a trust’s approved site list don’t have to provide the same type of evidence of exposure that they would have to in court.

Saying that no one is hiding information in an attempt to “game the system,” Swett said the evidence “has been where it’s always been—with the defendants.”

“Unlike the Garlocks of the world,” Swett said trusts are not hiding information as they provide it on websites created to assist potential claimants.

Mullin said while defendant companies believe the inconsistencies found in Garlock happen more and the plaintiffs want to say they never happen; the truth of the matter is “none of us know the truth.”

Fitzgerald, the panel’s moderator, said the arguments raised by Mullin and Swett highlight why a legislative resolution to the ongoing debate hasn’t been reached yet.

“The debate is going to rage for some time,” she said.

Fitzgerald, a former bankruptcy judge, now serves as of counsel at Tucker Arensberg in Pittsburg and a professor at Indiana Tech Law School.

Leslie A. Davis, an attorney at Crowell & Moring LLP in Washington D.C., also served on the panel, speaking about the creation of asbestos trusts and legislative efforts.

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