It’s a Matter of Trust: The Garlock Decision as an Impetus for Increased Transparency Legislation in the Asbestos Trust Arena

more+
less-

On January 10, 2014, a bankruptcy court judge considered the estimated asbestos liability for Garlock Sealing Technologies, LLC (Garlock), ultimately determining that liability to be $125 million, a fraction of its previously estimated liability.  In re Garlock Sealing Technologies, LLC, --- B.R. --- (Jan. 10, 2014, 2014 WL 104021).  In so ruling, the court noted that certain plaintiffs’ firms’ “startling pattern of misrepresentation” of exposure evidence rendered Garlock’s previous “settlements unreliable as a predictor of true liability.”  Id. at 14-15.

 

In the Garlock decision, the bankruptcy court was charged with determining the reasonable estimate of the company’s liability for past and future mesothelioma claims. To reach its decision, the court embarked upon a lengthy exposition of asbestos litigation, including the proliferation of asbestos personal injury trusts following the bankruptcy of early primary asbestos defendants.  Garlock, a producer and seller of asbestos gaskets and other related materials, was a named a defendant in the civil tort system for three decades before Garlock’s insurance was exhausted and the company filed for bankruptcy protection.

 

Garlock’s products were generally cloaked in thermal insulation supplied by other manufacturers, which contained amphibole asbestos fibers.  The court noted that the scientific evidence established that amphibole asbestos fibers were more potent than chrysotile asbestos fibers.  Garlock’s products contained encapsulated chrysotile asbestos fibers, which were only released when someone manipulated the gasket material, which generally took place only after the removal of thermal insulation, which caused what is often described by plaintiffs as a virtual “snowstorm” of asbestos dust.  Given the limited potency of the asbestos fibers contained in Garlock’s products, and the close proximity to potent amphibole fibers, the court concluded that Garlock’s liability for mesothelioma should be relatively small.

 

Garlock successfully leveraged its position during the initial waves of asbestos litigation, often pointing to the responsibility of other defendants that manufactured and sold thermal insulation products.  However, as asbestos litigation proliferated, many of the early primary asbestos product manufacturers, including the largest insulation sellers, reorganized under bankruptcy law.  By the mid-2000s, virtually all thermal insulation defendants were bankrupt.  When the insulation defendants departed the civil tort system, previously ancillary defendants like Garlock were thrust into the spotlight as target defendants.  At the same time, evidence demonstrating plaintiffs’ exposure to thermal insulation products disappeared.

 

Garlock presented evidence “that the last 10 years of its participation in the tort system was infected by the manipulation of exposure evidence by plaintiffs and their lawyers.”  Id. at 10.  The court allowed Garlock to conduct discovery into 15 settled cases, and found that in each and every case, the plaintiffs’ attorneys withheld exposure evidence.  The court noted that “it is suppression of evidence for a plaintiff to be unable to identify exposure in the tort case, but then later (and in some cases previously) to be able to identify it in Trust claims.”  Id. at 14.  The limited discovery into previously settled cases demonstrated that plaintiffs’ attorneys manipulated the chasm between the tort system and the bankruptcy trust system by withholding evidence of exposure to bankrupt defendants during civil litigation, and then resurrecting claims against those defendants in order to recover from bankruptcy trust funds.  The court found that the seemingly widespread practice of withholding exposure evidence unfairly inflated Garlock’s prior settlements, which were not a reliable predictor of Garlock’s true liability.  Ultimately, the court concluded that Garlock’s true liability is $125 million for past and future mesothelioma claims.  Notably, Garlock has now sued four plaintiffs’ law firms and an individual attorney involved in the 15 settled cases considered by the court, accusing the lawyers of violating the Racketeer Influenced and Corrupt Organizations Act (RICO) for their concealment of exposure evidence.

 

The Garlock decision resurrects the ongoing debate regarding the propriety of asbestos transparency legislation.  Most states and the federal courts do not mandate coordination between the civil tort system and bankruptcy trusts, despite the fact that evidence of exposure to bankrupt companies’ products can affect determination of causation, allocation of fault, discovery, and set-offs in civil litigation.  The current bankruptcy trust system often allows plaintiffs to obtain compensation for asbestos-related personal injuries or death without ever reporting it to defendants named in the civil court system.  The lack of coordination between the two pools of recovery provides an ideal environment for manipulation of evidence, as demonstrated in Garlock.  The seemingly ubiquitous gamesmanship involved in the withholding of exposure evidence should serve as an impetus for consideration of asbestos transparency legislation.  While the strong language used by the court and subsequent RICO lawsuits could serve as a deterrent for manipulation of exposure evidence, increased transparency between the tort system and bankruptcy trusts is the surest way to proscribe similar manipulation in the future.

 

Topics:  Asbestos, Asbestos Litigation, Asbestos Trust Claims, Commercial Bankruptcy, Settlement

Published In: Bankruptcy Updates, Civil Procedure Updates, General Business Updates, Insurance Updates, Products Liability Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Sedgwick LLP | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »