Product identification fraud and asbestos bankruptcy trusts: Lessons from In Re Garlock

By on March 25, 2015

The April 13, 2015 issue of Forbes magazine features a detailed article about the role product identification fraud played in the Garlock bankruptcy, In re Garlock Sealing Techs., LLC, 504 B.R. 71 (Bankr. W.D.N.C. 2014).  At the heart of the litigation is how these fraudulent claims affected the proposed value of the trust.  Certainly, in asbestos litigation in particular, the value placed on a single case by the plaintiff and defense bars will vary wildly.   The Garlock litigation demonstrated that the gulf is even wider when the value of all future cases is at stake.  However, the Garlock court made one thing very clear: product identification fraud is never a good basis to establish trust value.

After exhausting its insurance as a result of thirty years of asbestos litigation and settlements, Garlock, a producer of asbestos gaskets, filed a Chapter 11 petition in June 2010.  In approving Garlock’s reorganization plan  Judge Hodges wrestled with whether the plaintiffs’ attorneys’ estimate of Garlock’s present and future asbestos liability  ($1.0 – 1.3 billion) was a “reasonable and reliable” determination.  After a seventeen-day hearing that included testimony from twenty-nine witnesses and hundreds of exhibits, Judge Hodges sided with the defense and set Garlock’s liability for present and future mesothelioma claims at no more than $125 million.  In doing so, Judge Hodges rejected many of plaintiffs’ arguments suggesting a higher value.

The difference in estimates was attributed to each side’s distinct approaches to estimation in asbestos liability cases; Garlock offered a “legal liability” approach which considered the merits of the claims in the aggregate, while the plaintiffs utilized a “settlement” approach based upon an extrapolation of Garlock’s history of resolving mesothelioma cases.

Ultimately, the court sided with Garlock, finding that while the “settlement” approach may be used in some contexts, its application was not appropriate for Garlock for two reasons.  First, the information from Garlock’s settlement history did not “accurately reflect fair settlements” because exposure evidence was withheld.  Evidence presented to the court showed that plaintiffs in Garlock’s asbestos cases would engage in widespread withholding of evidence of exposure to other asbestos products “to delay filing claims against bankrupt defendants’ asbestos trusts until after obtaining recoveries from Garlock.”  This practice effectively “rendered that data [based on historical settlements paid by Garlock]  useless for fairly estimating Garlock’s liability to present and future claimants.”

Garlock’s settlement data – along with detailed supporting expert witness testimony and analysis –  showed that cost avoidance, not potential liability, was the motivating factor in civil settlement values.  Indeed,  the court noted that Garlock’s expense of litigating an asbestos injury case “far exceeded” the $75,000 average settlement paid to claimants; specifically, Garlock overwhelmingly settled cases in groups without regard to liability and virtually entirely to avoid the costs of litigation. “Thus, even where the likelihood of an adverse verdict was small, the prospect of a huge verdict and the great expense of defending a trial drove Garlock to settle cases regardless of its actual liability.”

One of the most interesting aspects of the decision was Judge Hodges’ delineation of principles to decide the proper method of liability estimation:

  1. Fair Estimates.
    Judge Hodges recognized the need for a delicate balance between compensating harmed individuals and the possibility that a once viable company will become extinct.
  1. Type of Asbestos Products.
    There is a great variety in the history of asbestos litigation, as some cases involve low-dose producers and disputed causation, while others include high doses of asbestos.  All aspects of such litigation are considered.  The low exposure of Garlock’s products warranted a “de minimis” liability.
  1. Use of Debtor’s Claims Resolution History.
    Judge Hodge noted  that “no court has held that analysis of a debtor’s claims resolution history is the exclusive means to estimate liability.”  While some courts analyze the merits of claims, others conclude that the bankruptcy court has discretion to determine the appropriate method in light of the particular circumstances of the bankruptcy case before them.

These principles, along with the specific data produced by Garlock of its “legal liability,” persuaded the bankruptcy court to cap Garlock’s aggregate liability for present and future mesothelioma claims at $125 million.

Notably, plaintiffs’ attorneys argued for the “cost of settlement” approach, an approach employed in the establishment of other trusts, but the court rejected this based largely on the withholding of evidence in the underlying cases.  In a statement following the decision, a Garlock spokeswoman noted that it was the “first time in more than 80 asbestos bankruptcies that the court didn’t accept the plaintiffs’ estimate of future claims.”  In fact, before Garlock, there was little public evidence to support Garlock and other defendants’ claims that asbestos plaintiffs manipulated or influenced evidence of exposure.  While the courts had routinely allowed discovery of bankruptcy trust claims, the expansive allegations of fraud in the Garlock case sparked a redoubling of efforts to obtain trust information.  For instance, in Sweredoski v. Alfa Laval, Inc., 2014 R.I. Super. LEXIS 14 (R.I. Super. Ct. 2014), the court upheld the right of Crane Co. to obtain discovery of these claim forms, as forms may contain inconsistent statements which would “go directly to the credibility of [the decedent’s] allegations that exposure to Crane’s products caused his injuries.”

Judge Hodge’s opinion paints a vivid picture of the discovery abuses that happen in asbestos cases where there is a lack of transparency and control over the scientific evidence supporting a claim – and the impact that those abuses may have in the establishment of a trust.  The issues raised in Judge Hodge’s decision (presently on appeal) are guaranteed to have lasting impact on future bankruptcies and claims, and to cause skepticism of a plaintiff’s counsel’s estimate on ultimate value.

 

Filed under Asbestos Bankruptcy Trust, Bankruptcy, Fraud, Garlock, Garlock Asbestos Bankruptcy Court Order

Record of Garlock Settlement History to be Unsealed

By on October 22, 2014

On October 16, 2014, U.S. Bankruptcy Judge George Hodges ordered the unsealing of an extensive record relating to past settlements of Garlock Sealing Technologies.  One report of this ruling can be found here, although as of October 22, the formal order has not been posted online.  Documents unsealed as a result of this order are expected to be available around the week of November 24, 2014.  The ruling was made in response to numerous motions to seal certain information, filed by claimants and by Garlock in In re Garlock Sealing Technologies.

After months of contentious discovery, Hodges previously had conducted a 23-day trial concerning the basis for the plaintiffs’ claims related to Garlock’s gasket and sealing products. Hodges found, among other things, that the liability evidence against Garlock reportedly showed that Garlock’s nonfriable products had little or no contribution to asbestos-related diseases.  Hodges also found that by concealing evidence and delaying filing of claims against entities that manufactured more friable products, plaintiffs were able to obtain higher judgments and extract inflated settlements from Garlock.

Hodges  overruled the objections of the claimants, who argued that the disclosure of this information violated their privacy.  While all parties agreed to protect some confidentiality, it was reported that once a claimant chose to file a public lawsuit, their identities in relation to those claims were not entitled to protection.  Similarly, settlement information Garlock submitted in the estimation trial was no longer entitled to protection from public scrutiny, because Garlock submitted this information voluntarily, thereby waiving work product or attorney-client privileges.

These documents will likely provide a rare behind-the-scenes view into common settlement practices used to resolve massive volumes of claims.  Hodges’ detailed ruling has shown how the litigation of individual cases can be used for financial gain unrelated to legal liability or fault. It remains to be seen whether our legal system can introduce sufficient transparency between the asbestos trust system and the civil litigation to prevent these abuses from spreading.

Filed under Asbestos Bankruptcy Trust, In Re Garlock Sealing Technologies

More Fallout From Garlock Ruling Finding That Asbestos Plaintiff Counsel Withhold and “Change” Evidence

By and on April 3, 2014

ASBESTOS TRUSTS FIND “PATTERN” OF SUBMITTING UNRELIABLE EVIDENCE TO SUPPORT TRUST CLAIMS

Audits of several asbestos bankruptcy trusts have revealed that a plaintiffs’ attorney “has submitted unreliable evidence to each of the Trusts and … has done so in a pattern.” Case 2:12-ap-02182-BB; Doc. 198 at pp.17-18. Through his counsel, attorney Michael Mandelbrot stipulated to sanctions including that he may file no new claims with any of the trusts, that he must cease activity on pending claims and must substitute out as attorney, and that he receive no “payments from any of these trusts for any reason.” He has since claimed that he stipulated under duress, including threat of criminal liability by (as well as incompetence of) his own counsel, and that he has discovered “evidence of criminal conduct” by other plaintiff counsel serving as trustees of asbestos bankruptcy trusts.

This audit finding, the “it’s not just me it’s others” defense, and the possibility of sanctions comes fresh on the heels of the ruling in In re Garlock Sealing Technologies that found widespread differences between what several different asbestos plaintiffs’ counsel represented to bankruptcy trusts and what they represented in civil court proceedings. The Thorpe and Western Asbestos audits and anticipated ruling may, and should, spur further efforts for greater transparency in the asbestos bankruptcy trust process.

The audits covered some 5,900 claims. The specifics of the “pattern” of “unreliable evidence” are unclear, because the bulk of the trusts’ evidence was submitted under seal. In Garlock, exposure evidence relevant to claims against bankrupt entities with trusts was suppressed in each and every one of the 15 asbestos injury lawsuits in which post-verdict investigation was conducted. In Garlock too, much of the underlying evidence was filed under seal. The press and several defendants have moved to unseal the evidence in Garlock, and a similar move seems likely  in Thorpe.

These rulings contradict pronouncements by asbestos plaintiffs’ counsel that the system is working fine and does not need greater transparency, such as this statement recently presented by plaintiffs’ attorney Elihu Inselbuch (who represents many plaintiff committees in asbestos bankruptcies) to Congress: “[D]espite trying to find instances of widespread fraud and abuse, there is none. Defendants have no evidence to support their assertions of fraud by plaintiffs. The Kananian case, on which they so heavily rely, was an isolated incident, remedied by a state court.” Not so “isolated” as all that – as the Garlock and now Thorpe cases demonstrate.

Similarly, on the day Congress passed Federal legislation to mandate transparency in the trust claiming process, one plaintiffs’ attorney posted the following statement: “Multiple independent studies prove any fraud is negligible.”  No citations to these “independent studies” are provided.

It is no longer a question of whether there is fraud in the asbestos trust system, which is beset with other problems as well. Now the question is how widespread it is, and what to do about it, on both a case-by-case and systemic basis. 

Filed under Asbestos, Asbestos Bankruptcy Trust

Second Circuit Snuffs Out Plaintiff Counsel Misconduct

By on August 22, 2016

On August 8, 2016, the Second Circuit issued its much awaited decision affirming the ruling of the Southern District of New York, which held that a $9.5 billion judgment obtained in Ecuador against Chevron Corporation by the indigenous Lago Agrio Plaintiffs in an environmental litigation could not be enforced. The Second Circuit’s 127-page decision represents a stunning rejection of virtually every legal argument advanced by Steven Donziger, who the district court found guilty of corrupt practices violative of the civil RICO statute.

8-22The Second Circuit’s decision will provide legal scholars much to discuss. After all, Donziger’s attorneys attacked the decision as unprecedented in that the trial court allowed Chevron, which had lost its case in Ecuador, to use a U.S. district court to attack the foreign damages award. However, at its roots, the Donziger RICO litigation was not really about issues such as jurisdiction or the enforceability of foreign judgments. Rather, it was about Donziger and his legal team’s brazen violations of ethics and norms when it prosecuted the Chevron case in Ecuador. The Second Circuit’s decision demonstrates that the court simply could not abide the evidence of legal misconduct. Specific instances of ethical misconduct by Donziger cited by the Second Circuit include the following examples:

  • Instructing his environmental consultant to estimate damages under the faulty assumption that Chevron’s predecessor entity, Texaco, was fully liable for all of the contamination, even after it had left the region. Donziger used what the consultant characterized as a “scientific wild ass guess” in the media to generate settlement leverage.
  • Directing Plaintiffs’ environmental consultants to use less probative tests after early environmental testing demonstrated that the pollution was likely not caused by Texaco.
  • Submitting to the court reports with falsified experts’ conclusions, including the charge that Texaco’s remediation was “inadequate or insufficient.”
  • Paying substantial fees to engineering experts to pose as “independent monitors” without disclosing to Chevron or the court that plaintiffs were paying them, which Donziger characterized in his notes as a “bargain with the devil.”
  • Coercing the presiding judge to cancel pollution site inspections due to concern that additional testing would produce pro-Chevron testing results. As coercion, Donziger used knowledge of an accusation that the judge had traded jobs for sex in his court.
  • Persuading the court to designate an independent court-appointed expert who would appear to be “independent”, despite being controlled by the Plaintiffs.
  • Directing plaintiffs’ environmental consultants to 1) perform the technical work supposedly performed by the court-appointed independent expert and 2) submit the report to the court under the independent expert’s name.

The fundamental weakness of Donziger’s appeal was his utter failure to attack any of the multiple factual bases for the trial court’s decision of nearly 500 pages. Some of the Second Circuit’s most important pronouncements are recitations of age-old legal precepts that are all too often ignored by our nation’s courts.

The appellants argued that any misdeeds by Donziger, however egregious they may have been, did not provide a basis for the district court to nullify their monetary award. They contended that they were unaware of any misconduct and “simply ‘unsophisticated client-principals following the lawyers’ lead’.” In rejecting this argument, the Second Circuit found that there was no basis for arguing that a party ignorant of the fraudulent actions of its lawyer may enforce a fraudulently procured judgment. To do otherwise, the Second Circuit held, would run afoul of the U.S. Supreme Court’s maxim that fraud “is a wrong against the institutions set up to protect and safeguard the public, institutions in which fraud cannot complacently be tolerated consistently with the good order of society.” Thus, the court noted, even innocent clients may not benefit from the fraud of their attorney.

The Hon. Amalya Kearse, writing for the Second Circuit, quoted the district court: “There is no ‘Robin Hood’ defense to illegal and wrongful conduct. And the defendants’ ‘this-is-the-way-it-is-done-in-Ecuador’ excuses–actually a remarkable insult to the people of Ecuador — do not help them. Evidence that Donziger had actively sought a prohibition in Ecuador of the disclosure ordered by the SDNY, the Second Circuit found, was evidence of bad faith and a justification for sanctions. On this basis, the court affirmed the Rule 37 sanctions granted Chevron by the district court. The district court had found the Donziger parties’ “obdurate and quite possibly contemptuous refusal to comply with their discovery obligation” warranted the striking of personal jurisdiction defenses.

A disturbing post-script to the Donziger saga is that, despite the evidence against his ethics, he retains “rock star” celebrity status in certain legal circles. Notably, after the issuance of Judge Lewis Kaplan’s trial court decision, Harvard Law School hosted Donziger at a panel discussion on Ecuadorian rainforest litigation. One may wonder why Donziger was considered a reputable source and deserving of an invitation. In fact, Paul Barrett in Bloomberg Businessweek (August 8, 2016) suggested that Donziger’s Harvard Law hosts ask him the following questions during his visit:

  • Why haven’t you rebutted or explained the evidence of fraud, bribery and collusion against you, under oath in a court of law?
  • If you did not commit fraud in this case, why did Julio Prieto, one of your Ecuadorian lawyers, email you with fears that if your activities were discovered “all of us, your lawyers, might go to jail”?
  • If you did not commit fraud in this case, how do you explain the bank records that show $1,000 was deposited in an Ecuadorian judge’s bank account on several occasions? Why were the deposit slips signed by a staff member of your organization?
  • If you did not ghostwrite the Ecuadorian judgment against Chevron, how do you explain that text from your internal work product was found word-for-word, typos and all, in the judgment?

Barrett suspects these questions were not addressed at the panel discussion in light of the tone of their event announcement material. Barrett concludes that “[w]hat we really need to find out is how much credibility should be assigned to the folks at Harvard, rather than Donziger himself, if they are willing to ignore the mountain of evidence against the racketeer and treat him as some sort of human rights crusader and victim of big business retaliation.” Harvard’s embrace of a disgraced lawyer, no matter how noble the underlying intention, raises an important question about the ends served by lending credibility to a non-credible individual.

All too often, in our nation’s mass tort litigation, such as in asbestos litigation, a clear judicial finding of fraud or misconduct does not result in the forfeiture of the party’s damages award. For example, despite clear evidence of plaintiff lawyers “gaming the system” in the Garlock bankruptcy case, many state court asbestos trial judges appear willing to take this misconduct in stride and to go about business as usual. There is little awareness in the defense bar of any judicial initiative to ensure that Garlock-like offenses are not proliferating in their courtrooms. A thorough house cleaning often does not take place in the judiciary until a journalist or an insightful jurist has brought unwelcome attention to the court.

Filed under Environmental Contamination, New York, Oil

California appellate court bucks national trend, allows plaintiff experts to opine that “every asbestos exposure is a substantial factor”

By on March 4, 2016

Courts from around the country have rejected efforts by plaintiff experts to testify that every asbestos exposure is a substantial factor in causing disease. On March 3, 2016, California’s second appellate district went the other way, and held in Davis v. Honeywell International, Inc. that the controversial “every exposure counts” theory is admissible under governing expert witness law.   Thus, although trial courts are supposed to play a “gatekeeper” role in keeping out unreliable expert evidence (Sargon Enterprises, Inc. v. University of Southern California (2012) 55 Cal.4th 747), Davis breaks the gate wide open in allowing a jury, not the trial court in its “gatekeeper” role, to decide whether to accept the theory.

Davis was aGATEPICTURE wrongful death case.  Sam Davis  worked as an auto mechanic and home remodeler from approximately 1963 to 1979.  He performed “one or two” brake jobs per day, and always used Bendix brake linings (for which defendant Honeywell was responsible). These linings contained 50 percent chrysotile asbestos by weight.  He was also allegedly exposed to asbestos as a result of his home remodel work.

Prior to trial, Honeywell filed a motion in limine to preclude plaintiff from presenting expert opinion testimony that every exposure to asbestos above background contributed to decedent’s disease. The motion was denied, and plaintiff’s pathologist (James A. Strauchen, M.D.) and pulmonologist (William Rom, M.D.) were permitted to testify and advance the theory. Ultimately, the jury found for plaintiffs, and Honeywell appealed.

Honeywell’s primary basis for appeal was that the “every exposure counts” testimony of Dr. Strauchen should have been excluded. Honeywell advanced four arguments:  (1) the testimony was speculative and illogical; (2) the regulatory standards Strauchen relied upon cannot establish causation; (3) no appropriate scientific literature supports the theory; and (4) the theory is contrary to California causation law espoused in Rutherford v. Owens Illinois (1997) 16 Cal.4th 953, which held that not every exposure to asbestos is a “substantial factor” in causing disease.

Davis rejected each of Honeywell’s arguments. “Having reviewed much of the commentary and scientific literature cited in support of and against the ‘every exposure’ theory, we conclude that the theory is the subject of legitimate scientific debate.   Because in ruling on the admissibility of expert testimony the trial court ‘does not resolve scientific controversies (Sargon), it is for the jury to resolve the conflict between the every exposure theory and any competing expert opinions.”  The court focused largely on the mere existence of evidence that supported the “every exposure counts” theory, and declined to weigh the evidence or any competing inferences.   “While Honeywell is generally correct that in many (or even most) instances epidemiological studies provide the best evidence of causation, its implied argument that it is improper for an expert to rely upon any other tools to determine causation, such as case reports, is not universally accepted.”  As to Honeywell’s argument that “every exposure” contravenes Rutherford, Davis  interpreted Rutherford as not requiring a “dose level estimation,” instead issuing a sweeping statement interpreting Rutherford as supporting the conclusion that even a very small “dose” could increase the risk of asbestos-related cancer.  Davis distinguished the many cases from other jurisdictions rejecting this argument, including Betz v. Pneumo Abex, LLC (2012) 615 Pa. 504, Bostic v. Georgia-Pacific Corp. (Tex. 2014) 439 S.W.3d 332 and Moeller v. Garlock Sealing Technologies, LLC (6th Cir. 2011) 660 F.3d 950. “[W]e simply disagree” that the “every exposure” theory could not be “reconciled with the fact that mesothelioma and other asbestos-related diseases are dose-dependent.”

The Davis court did state, however, that “[w]e caution that our discussion of the materials Dr. Strauchen relied upon should not be seen as approval of either side in that scientific dispute.  Rather, we rely upon the rule of Sargon that although trial courts ‘have a substantial ‘gatekeeping’ responsibility,’ in evaluating proposed expert opinion . . . the gate tended is not a partisan checkpoint . . . If the opinion is based on materials on which the expert may reasonably rely in forming the opinion, and flows in a reasoned chain of logic from those materials rather than from speculation or conjecture, the opinion may pass, even though the trial court or other experts disagree with its conclusion or the methods and materials used to reach it.”  (emphasis added)

Further, although much of the discussion relates to the “any exposure” theory, Davis pointed out that the case did not hinge on that theory.  “In this case, Dr. Strauchen was presented with a hypothetical based on the facts surrounding Davis’ exposure to dust from his work on Bendix brake linings, and testified as to estimates of the amount of asbestos fibers contained in visible dust. Therefore, his conclusion that Davis’ exposure to Bendix brake linings was a substantial factor in contributing to the risk of mesothelioma was not based simply on “any exposure” to asbestos, but instead related to an estimate of actual exposure.”

The decision is not yet final. It is still subject to a petition for rehearing, which could result in a change in the opinion, and to either or both a request for depublication and a petition for review to the California Supreme Court, either of which if granted would make this decision uncitable in California courts, though not necessarily elsewhere.

Filed under Asbestos, asbestos exposures, Daubert, every exposure counts, evidence, Expert Opinions, Expert Reports, expert testimony, Expert Witness, Frye, gatekeeper, Low Dose, Sargon, scientific literature, single fiber theory, Substantial Factor, Theories of Liability, Uncategorized

Los Angeles Asbestos Court Demands Bankruptcy Trust Transparency

By on April 13, 2015

As previously reported, Judge Elias in Los Angeles had indicated an intention to bring to conclusion a long standing discussion with counsel regarding the extent of disclosure regarding asbestos bankruptcy trusts that plaintiffs will be obliged to provide when responding to “General Order” discovery requests for all asbestos cases in Los Angeles.  Despite receiving supplemental papers from the plaintiff bar urging her to alter her position, Judge Elias has now issued a formal order regarding such discovery. It varies little from the proposed order Judge Elias floated previously, and might be the first order requiring a signed authorization from plaintiff for the release of claims submitted to bankruptcy trusts.

bankruptcy_filing

The order was entered retroactively and made applicable to all cases filed on or after February 1, 15, 2015.  Though it is to remain in force for a “trial period” of 6 months, it will stay in effect thereafter “unless amended, vacated or otherwise superseded by further order.” Therefore, as of now, the standard discovery in Los Angeles will include:

1.         An authorization from plaintiff for release of claimant information submitted to an asbestos bankruptcy trust.

2.         Additional interrogatories included within the “standard” discovery.  The existing discovery included 4 questions regarding claims to bankruptcy trusts.  These are now augmented by 6 more questions requiring extensive information regarding exposure to the products of, or on the premises of, dozens of identified trusts.  Further the new order requires that such responses be updated not later than 5 days before trial, regardless of whether a claim has been made or will be made to such bankrupt entity.

3.         The order broadly requires the disclosure of claims and any other communications with all trusts. In particular, the court finds “all documents sent to, received from, shown to, exchanged with, or otherwise disclosed to any established or pending asbestos trust funds — for any purpose” to be discoverable, and requires that “Plaintiffs shall produce” all such materials.

4.         The documents that must be produced further includes “ballots, questionnaires, submitted or filed forms, summaries, claims, ‘placeholder’ claims, request for extensions, requests for deferrals, all supporting documentation, all related communications, and all documents filed … pursuant to Rule 2019 of the Federal Rules of Bankruptcy Procedure.”   This order is meant to require production of some of the required and verified disclosures that must be made by any “groups, committees and entities” that represent “multiple creditors” in a Ch.  9 or 11 proceeding. In past asbestos-related bankruptcies, these filings were not generally accessible to the public as they would be in a normal bankruptcy.  Garlock had made attempts to obtain such documents, but the bankruptcy courts rejected those attempts. Judge Elias’ order specifically ordering the production of these may be the first discovery order to specifically mention Rule 2019 disclosures in this context.

5.         The court also requires production of signed affidavits or declarations that “have been circulated to someone other than plaintiff and plaintiff’s counsel” as they are not privileged.  Thus any declaration sent to a trust must be disclosed.

No doubt the plaintiffs’ bar is considering its possible responses.  Defense counsel in other jurisdictions in California are already seeking ways to expand upon this. In particular, the presiding asbestos judges in San Francisco and Alameda Counties will be urged to implement similar orders.

Filed under Asbestos, Asbestos Bankruptcy Trust, asbestos fraud, California

Greater Transparency re: Asbestos trust claims soon to be ordered in Los Angeles

By and on March 13, 2015

The Superior Court for the County of Los Angeles for many years now has handled a busy asbestos docket with numerous cases proceeding through trial and many more resolved before a verdict is rendered.  The court handles cases brought by many prominent plaintiff firms with national presences.  It is therefore interesting to see this court follow the lead of other courts and various legislative bodies in preparing to mandate greater transparency regarding claims made to bankruptcy trusts.

The asbestos docket in Los Angeles is managed by Judge Emilie Elias.  Judge Elias has conducted a series of meetings/hearings regarding the proper scope of discovery regarding claims made to bankruptcy trusts with argument and briefing submitted on behalf of many defendants and several prominent plaintiff firms. The court recently issued an order regarding its tentative decision regarding these issues.

Attached is a copy of that recent order.  The court has requested comments to this proposal on or before March 20, 2015.  In general, this order is extremely favorable to Defendants. The proposed order makes the following significant additions to the discovery requirements in all cases in the Los Angeles asbestos docket:

    1. An authorization from plaintiff for release of claimant information submitted to an asbestos bankruptcy trust;
    2. Additional interrogatories included within the “standard” discovery.  The existing discovery included 4 questions regarding claims to bankruptcy trusts.  These are now augmented by 6 more questions requiring extensive information regarding exposure to the products of, or on the premises of, dozens of identified trusts.  Further the new order will require that such responses be updated not later than 5 days before trial, regardless of whether a claim has been made or will be made to such bankrupt entity.
    3. Broad orders requiring the disclosure of claims and any other communications with all trusts. In particular the court finds “all documents sent to, received from, shown to, exchanged with, or otherwise disclosed to any established or pending asbestos trust funds — for any purpose” to be discoverable. The order indicates that “Plaintiffs shall produce” all such materials;
    4. The production of documents ordered by the court further includes “ballots, questionnaires, submitted or filed forms, summaries, claims, ‘placeholder’ claims, request for extensions, requests for deferrals, all supporting documentation, all related communications, and all documents filed … pursuant to Rule 2019 of the Federal Rules of Bankruptcy Procedure.”   This order is meant to require production of some of the required and verified disclosures that must be made by any “groups, committees and entities” that represent “multiple creditors” in a Ch.  9 or 11 proceeding. In past asbestos-related bankruptcies, these filings were not generally accessible to the public as they would be in a normal bankruptcy.  Garlock had made attempts to obtain such documents, but the bankruptcy courts had  rejected those attempts. (Therefore Judge Elias’ order specifically ordering the production of these may be the first discovery order to specifically mention them in this context.)
    5. The court also requires production of signed affidavits or declarations that “have been circulated to someone other than plaintiff and plaintiff’s counsel” as they are not privileged.  Thus any declaration sent to a trust must be disclosed.

The court has indicated that these changes, if finalized, will be applicable to all cases filed after Feb. 1, 2015 and will be applicable for only a 6 month trial period, but the expiration of the trial period will not sunset the order unless further modified.  Defendants have filed a brief seeking clarification of this limited period of application, and perhaps other components of the order.  The plaintiffs’ bar has consistently shown a great deal of interest in this order and it is likely that they will file additional papers and perhaps even seek appellate review. However, in the meantime, this prospective order is good news for the defense seeking further transparency on this issue.

Filed under Asbestos, Asbestos Bankruptcy Trust, Los Angeles

MDL Court Rules That Work on Two Pumps Not a Substantial Factor

By on August 26, 2014

Substantial factor?  I know it when I see it.

Many of us have struggled for quite some time in reaching a consensus on what level of exposure does, and does not, constitute a “substantial factor” when assessing causation of an asbestos-related disease.  In a recent order on a motion for summary judgment, Judge Eduardo Robreno of the asbestos MDL, applying maritime law, weighed in on the issue.  His decision gives additional guidance, if it does not end the discussion.

The case involved a former U.S. Navy sailor who testified to exposure to original asbestos-containing gaskets and packing used with two pumps found on the virtually new USS Downes.  Even while accepting that evidence as accurate, Judge Robreno granted the MSJ by determining this was a “mere minimal exposure” as described in Lindstrom v. A-C Prod. Liab. Trust, 424 F. 3d 488 at 492. Judge Robreno stated:

Although there is evidence that Plaintiff was exposed to respirable dust from the original gasket and packing used with a single Buffalo electric fire pump, and the original gasket used with a single Buffalo evaporator pump —-, maritime law requires more than a “mere minimal exposure” to support a finding of causation. (Citation omitted.)  As such, no reasonable jury could conclude from the evidence that Decedent was exposed to asbestos from a product manufactured and/or supplied by Defendant such that it was a substantial factor in the development of his illness.

Other courts have likewise relied upon Lindstrom to reject claims that minimal exposures constituted a substantial factor.  The Sixth Circuit expressed the sentiment memorably in Moeller v. Garlock Sealing Technologies, 660 F.3d 950 at 955 (6th Cir. 2011):

On the basis of the record, saying that exposure to Garlock gaskets was a substantial cause of [plaintiff’s] mesothelioma would be akin to saying that one who pours a bucket of water into the ocean has substantially contributed to the ocean’s volume.

From a defense prospective, this order from Judge Robreno compares favorably with other attempts to define a substantial factor.  In California, for example, we must deal with the language of Jones v. John Crane, Inc., 35 Cal. Rptr. 3d 144 (2005).  In Jones, John Crane argued that the exposures attributable to its products were comparable to ambient levels of asbestos in the community at large, and paled in comparison to the plaintiffs’ other exposures (10 fiber hours, or .005 fiber years, compared to an estimated 200 fiber years of exposure to asbestos-containing insulation and 2.8 fiber years from ambient exposures). Plaintiff experts challenged the defense calculations and offered expert testimony that every exposure contributed to the risk.  The court ruled against the defense: “[A] level of exposure that is the equivalent of that to which one might be exposed in the ambient air over a lifetime is not necessarily insignificant.”

While the order from Judge Robreno gives us at least one example of what does not constitute a substantial factor, it provides scant guidance as to how to assess future cases.  Nevertheless, at least when maritime law is applied, it is reassuring to know that there are some acknowledged exposure scenarios that do not qualify as substantial factors.

Filed under Asbestos, Maritime, MDL, Substantial Factor

Wisconsin Gubernatorial Candidate Supporting Repeal of Wisconsin’s Asbestos Bankruptcy Trust Transparency Act

By on August 19, 2014
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Wisconsin gubernatorial candidate Mary Burke has announced that, if she translates last week’s primary victory into a general election victory this fall, she will repeal Act 154, Wisconsin’s new asbestos bankruptcy trust transparency law. Burke supports the proposed Assembly bill to repeal Act 154, which was signed by Wisconsin Gov. Scott Walker in March 2014.  More than 100,000 Wisconsin veterans and various lobbyists opposed the enactment of Act 154, and apparently the fight is not yet over.

Act 154, which applies to lawsuits filed on or after March 29, 2014, requires asbestos plaintiffs to disclose all potential and pending asbestos trust claims via sworn statements, and sets guidelines for the substance and effects of the required disclosure.  The plaintiff’s sworn statement must include “the name, address, and contact information for the asbestos trust, the amount claimed by the plaintiff, the date that the plaintiff filed the claim, the disposition of the claim and whether there has been a request to defer, delay, suspend, or toll the claim against the asbestos trust.”

To enhance transparency, the Act allows this information to be used in court:  “Trust claims materials and trust governance documents are admissible in evidence.  No claims of privilege apply to trust claims materials or trust governance documents.”  The Act broadly defines “trust claims materials” as all documents and information relevant or related to a pending or potential claim against an asbestos trust. These materials include claims forms and supplementary materials, proofs of claim, affidavits, depositions and trial testimony, work history, and medical and health records.  The plaintiff is obligated to supplement the information and materials provided within 30 days after filing an additional claim or receiving additional information or documents related to any asbestos trust claim.

In addition, under the Act, the defendants may identify additional asbestos bankruptcy trusts that the defendants reasonably believe the plaintiff should file claims with, even if these trusts are not identified by the plaintiff.  Upon motion of the defendants with supporting documentation, the court may order the plaintiff to file claims against defense-identified asbestos trusts.

Further, the Act provides that trust documents may be used at trial “to support a jury finding that the plaintiff may have been exposed to products for which the trust was established to provide compensation and that such exposure may be a substantial factor in causing the plaintiff’s injury that is at issue in the action.”

The Act also governs trial verdicts and the plaintiff’s ability to collect damages.  For a verdict where the defendant is negligent, the plaintiff may not collect any amount of damages until after the plaintiff assigns to the defendant all rights and claims against asbestos trusts.

Wisconsin’s Act 154 is thus a model for increased transparency between the bankruptcy and civil systems.  That it faces possible repeal threatens that transparency, without providing any fairer compensation to injured workers.

To read more about asbestos bankruptcy trusts, see prior posts on this blog:

Filed under Asbestos Bankruptcy Trust, Wisconsin

Transparency Still Needed to Resolve Asbestos Claims on the Merits

By on July 22, 2014
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Gordon & Rees Philadelphia partners William Shelley, Jacob Cohn, and Joseph Arnold recently wrote a follow-up article, “The Need for Further Transparency Between the Tort System and Section 524(g) Asbestos Trusts, 2014 Update – Judicial and Legislative Developments and Other Changes in the Landscape Since 2008,”  23 Widener L.J. 675 (2014).  The new article looks over the history of discovery of information arising from asbestos trust claims since their initial article in 2008.  Based on what has been uncovered in the last seven years, the authors explain the continuing need for complete disclosure of exposure and setoff information in asbestos cases, even though it would seem the issue should have been resolved.

In “The Need for Transparency Between the Tort System and Section 524(g) Asbestos Trusts,” 17 Norton J. of Bankr. L. & Practice 257 (2008), Shelley, Cohn, and Arnold described the need for increased transparency between the tort system and the asbestos bankruptcy system.  The 2008 article addressed how defendants in the tort system were facing increased claims and increased settlement demands following the bankruptcy of major players in the asbestos manufacturing business, even though the goal of bankruptcy was that trusts would be formed to continue to compensate claimants on behalf of these entities.  However, back in 2008 there were signs of manipulation of this system for financial gain, as illustrated by the case of Kananian v. Lorillard Tobacco Co.  In the Kananian case, the trial judge found persistent manipulation of evidence between civil cases and trust claims, which resulted in the revocation of pro hac vice privileges and findings of intentional and deceptive manipulation of the trust and discovery processes.  Based on this case, the authors urged for the implementation of procedures to ensure full discovery to avoid further such cases.

The 2014 trial findings by the Garlock court, seven years later, have shown that Shelley, Cohn, and Arnold were seeing the beginning, not the end, of this trend of manipulation.  Kananian was not an isolated instance.  After a three-month trial, Bankruptcy Judge George Hodges concluded that gasket manufacturer Garlock was resolving claims to avoid transaction costs, which were inflated by widespread concealment of facts by plaintiffs’ attorneys.  This concealment caused Garlock to resolve cases at settlement values far out of proportion to the connection, if any, between Garlock’s gaskets and disease causation.

Shelley et al.’s new article documents many other instances around the country in addition to the findings of the Garlock court, where evidence of similar practices have come to light.  Other trial judges have seen similar instances of concealment of evidence supporting bankruptcy claims in cases pending in their courtrooms.  See Peggy Abelman, “A Case Study from a Judicial Perspective: How Fairness & Integrity in Asbestos Tort Litigation Can Be Undermined by Lack of Access to Bankruptcy Trust Claims,” 88 Tul. L. Rev. 1185 (2014).

The article also outlines attempts by the trusts to block discovery by insurers, who have requested disclosure of information to ensure the hundreds of millions of dollars placed into trusts for asbestos claimants are actually paid to legitimate claimants.  Finally, the article outlines the failure of arguments by the trusts that their status as creations of the federal bankruptcy courts somehow shields them from the discovery process.

The fundamental premise laid down in Volkswagen of America v. Superior Court remains unchanged.  These claims, and all information that would support these claims, is discoverable.  Unfortunately, recent history has shown that asbestos plaintiffs have not disclosed this information fully and fairly.

Asbestos trusts pay billions of dollars each year in settlement of asbestos claimants.  When cases settle without full disclosure of facts, the legal system produces inconsistent results.  Cases are resolved based on avoidance of legal costs, rather than factual or legal liability.  The resolution of claims to avoid transaction costs out of proportion with actual fault violates the fundamental principle of our legal system that defendants should pay only when they are actually responsible.  Payments to avoid legal transaction costs do not serve the same goals as when claims are resolved to compensate for actual liability.

Unless we take these historical lessons to heart, allowing unchecked discovery abuse may lead to future bankruptcies of otherwise solvent companies.  The civil tort system should approximate the outcome the parties would reach in the absence of transaction costs; that is, payment only on a showing of actual liability, based on full disclosure.  The historical facts that caused exposures are known to plaintiffs and their lawyers, and all such facts should be part of required disclosures early in any asbestos case.  Further, there must be penalties for late disclosure.  Efficient and full discovery in the tort system of all sources of exposure is the only way to ensure that claims filed in the tort system reflect fair compensation, and preserve assets for future claimants.

Filed under Asbestos, Asbestos Bankruptcy Trust

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