Fresh evidence of the efficacy of transparency in public affairs recently came from an unexpected source -- class-action litigation on behalf of people who claim to have developed mesothelioma as a result of exposure to asbestos. An estimated $37 billion has been set aside to compensate such victims since the litigation became common in state and federal courts in the 1980s. Among the 100 or so companies that have been shut down at least in part by mesothelioma litigation is the Chapter 11 bankruptcy case of Garlock Sealing Technologies. Multiple trial lawyer firms have filed claims with the trust established to compensate Garlock victims. Those same firms have filed millions of dollars in claims for legal fees associated with their clients' cases.
On Jan. 10, U.S. Bankruptcy Court Judge George Hodges issued a landmark ruling that shed sunlight on evidence that had previously been kept in the dark, sealed by confidentiality orders. The evidence was submitted in claims by which victims sought compensation from the Garlock trust. Hodges was concerned that victims' lawyers were telling the trust administrators they had filed only one claim in the Garlock case when in fact they had filed numerous claims with multiple trusts on a client's behalf. Doing so fraudulently inflated payouts to victims and lawyers. Hodges concluded the problem was so pervasive in the Garlock case that he reduced the bankrupt firm's projected liability from $1.25 billion to $125 million.
|"It appears certain that more extensive discovery would show more extensive abuse."|
That decision sent shock waves through the ranks of trial lawyers who in recent decades made careers and fortunes on asbestos liability litigation. It was bad enough from their perspective that Hodges ordered a dramatic reduction in the trust. Far more damaging to their prospects was the fact Hodges had allowed Garlock's lawyers to pursue discovery in 15 victim cases for documents that exposed the fraud. What the Garlock lawyers found prompted Hodges's conclusion that such misrepresentation is “a regular practice by many plaintiffs' firms” involved in asbestos litigation, and “it appears certain that more extensive discovery would show more extensive abuse.”
More transparency in asbestos bankruptcy litigation is on the way. Sen. Jeff Flake, R-Ariz., recently introduced the "Furthering Asbestos Claim Transparency (FACT) Act of 2014." The measure, which was passed last year by the House of Representatives, requires disclosure of the names and exposure history of all compensation claimants. The measure exempts medical records and full Social Security numbers from the disclosure mandate. Passage of the FACT measure would extend to thousands of asbestos trust claims cases the same transparency Hodges required in the Garlock case.
Institute for Legal Reform Chairman Lisa Rickard hails the FACT measure, saying “fraud and abuse in the system drain the funds available to deserving claimants and forces solvent companies, as well as their shareholders and employees, to pay more than their fair share when claimants 'double dip' in court and in the trust systems. The FACT Act would diminish the damaging economic ripple effect of these abuses.” It’s about time.