CHARLOTTE, N.C. (Legal Newsline) – The Future Claims Representative in the Garlock Sealing Technologies bankruptcy case filed a brief on Friday siding with Garlock and urging the court to set a bar date for current asbestos claims, which he says would allow Garlock to better estimate the number of future claims.
Joseph W. Grier III is representing future asbestos claimants in the Garlock case. In his brief, he supported the debtors’ request for an order that would establish a bar date for filing settled Garlock’s asbestos claims, approve the proof of claim form and approve the forum and procedures for notice to settled Garlock asbestos claims.
The debtors to which Grier is referring includes Garlock, Garrison Litigation Management Group, Ltd., and The Anchor Packing Company.
A bar date in a bankruptcy proceeding is a deadline for asbestos victims or companies to make their claims against Garlock, which is intended to prevent surprise claims from arising.
Grier claims a bar date will provide certainty as to the pool of existing settled claims, both disputed and undisputed, which will permit reliable provision for such claims under any plan of reorganization.
Asbestos-related diseases often have latency periods up to 35 years or longer, meaning some personal injury claims against the debtors may not manifest themselves for decades to come, Grier explained.
While the parties involved in the bankruptcy case disagree as to the number of possible future claims, the debtors predict that roughly 16,800 mesothelioma claims alone will be brought through 2059, which is nearly eight times the number of current claims.
However, Grier added that all future claims are unknown.
Grier included an article written by S. Todd Brown as an exhibit, which addressed the negative impact that miscalculations of future claims can have on claimants.
According to Brown’s article, asbestos trusts have miscalculated by either underestimating their long-term liabilities or overestimating its projected assets.
“This miscalculation begins during the bankruptcy case,” Brown wrote. “Although estimation proceedings are common in asbestos bankruptcies, they do not provide a basis for ensuring that the trust is in position to pay current and future claimants equitably.”
“These estimates consistently fall short, thereby allowing current claimants to obtain high initial recoveries and requiring substantial reductions in payments to future claimants.”
Putting numbers to words, Brown showed just how depleted trusts have become. To date, nearly 60 asbestos bankruptcy trusts have been established or are in the process of being established. Nearly $14 billion has been distributed to trust claimants from 2006 through 2011, leaving $18 billion in assets to satisfy claims submitted over the next 40 years.
Put simply, the same amount of money spent in about five years must last the next 40 years.
Grier noted that the parties do agree that there will be, at a minimum, tens of thousands of such claims across all asbestos-related disease categories, adding that future claims are “by far the largest creditor constituency.”
Grier argues that after a debtor creates a trust, it loses any incentive to question the existence or merits of a settlement. Instead, the task falls to the creditor representatives. If those representatives, relying on the debtor’s data alone, underestimate the number of settlements, adjustments may need to be made, which could prejudice the future claimants.
Aware of this potential problem, the FCR previously sought to better understand the amount of settled claims by working informally with the debtors for current claimants in order to avoid the cost and burden of a bar date.
However, the FCR and the debtors were unable to reconcile the parties’ respective different views as to the magnitude of settled claims or otherwise obtain complete data that would allow him to do so.
“In fact, the actual amount of settled claims was one of the many contested items during the estimation trial,” the brief states. “The FCR subsequently advised the court that he believed a bar date would ultimately be needed, before plan confirmation and the finalization of requisite trust funds, to determine the number and amount of settled claims. The FCR is of the same view today.”
As part of his duties, Grier seeks to ensure that present and future asbestos claimants are treated fairly under Garlock’s trust procedures.
According to the brief, the FCR wishes for various protections to be embedded in the trust procedures, including “clearly defined, meaningful asbestos exposure standards reasonably tailored to the Debtors’ products; appropriate but attainable medical requirements for proof of a claimant’s illness; and robust audits for other measures to identify invalid claims and ensure accountability.”
However, Grier added that despite measures put in place to protect claimants, the parties involved will still face challenges of accurately predicting just how many claims, of all types, will be submitted, which leaves a potential for future claims to be paid significantly less than present claims.
Grier understands that it is impossible for the debtors to know exactly how many cases have been settled and assume how many it could face because they confront thousands of claims and asbestos cases are occasionally settled in large groups.
“As such, it is foreseeable that plaintiff firms could reasonably believe they reached an enforceable settlement or settlements but the Debtor could reasonably disagree,” the brief states.
Grier reassures the court that completing the Official Form No. 10 and setting a bar date should not be too burdensome or costly, because the debtors have contact information for all the plaintiff firms that could have entered into unpaid pre-petition settlements. In fact, setting a bar date will allow the counsel to quickly determine if their clients are subject to an enforceable settlement agreement and provide supporting documentation.
“Any minimal burden will be outweighed by the benefit to all parties of knowing exactly how many claims are subject to unpaid pre-petition settlements,” the brief states.
Grier explains that the debtors may facilitate the exercise by providing listings of known settlements, allowing the parties and the court to know the number and amount of all settlements, undisputed and disputed, allowing for accurate provision of reserves.
The FCR was appointed by U.S. Bankruptcy Judge George Hodges to represent the interest of the holders of future asbestos personal injury claims against the Debtors.
Hodges appointed Grier just after a Jan. 10 bankruptcy ruling in favor of Garlock, ordering the gasket manufacturer to put $125 million in an asbestos trust – roughly $1 billion less than what plaintiffs’ representatives felt was proper. In his decision, Hodges noted how attorneys had been withholding evidence while pursuing claims against Garlock in order to maximize recovery.
As an exhibit, Grier included an article by Thomas M. Wilson addressing bankruptcy trust fraud.
Wilson’s piece, titled “Institutionalized Fraud in Asbestos Bankruptcy Trusts,” was published in the Mealey’s Litigation Report: Asbestos.
His article focuses on Hodges’ actions in the Garlock bankruptcy proceeding, noting that the judge did not address loopholes that have been built into asbestos bankruptcy trusts, which can be viewed as institutionalized fraud.
“Institutionalized fraud consists of certain procedures and processes which are systematically built into asbestos trusts through documents such as the trust agreement and the trust distribution procedures,” Wilson wrote.
Wilson explains that fraud begins with the procedures set forth by the Trust Distribution Procedures, TDP, which makes settlement payments possible for asbestos claimants even though similar payments would not otherwise be permissible. Because the system was designed by those who are now submitting claims, loopholes have been integrated into the trust system.
“What is wrong with this picture? Simply put, by building into asbestos bankruptcy trusts legitimate procedures which permit a claimant to receive compensation for claims which are not otherwise payable within the tort system, asbestos claimants, and therefore their attorneys, are able to obtain millions of dollars in compensation without fear of repercussion,” Wilson wrote.
“Plaintiff asbestos lawyers then use the millions of dollars of fees obtained from the system they were instrumental in building, to run countless advertisements designed to obtain more clients so that they can submit more claims and obtain more fees. Thus, institutionalized fraud, as built into the system, allows the system to perpetuate itself.”
In order to complement his arguments, Grier also included an article by Marc C. Scarcella and Peter R. Kelso discussing the self-serving provisions in the TDP.
Scarcella and Kelso’s piece, titled “Asbestos Bankruptcy Trusts: A 2012 Overview of Trust Assets, Compensation & Governance,” was published in Mealey’s Asbestos Bankruptcy Report.
Scarcella and Kelso’s article primarily discusses bankruptcy trusts in general and their assets, saying that as assets have grown, so have payments to asbestos claimants.
They explain that trusts have established a payment percentage that reduces the actual awards by a fixed percentage when trusts cannot pay claimants the full compensation for a specified claim amount as prescribed in the TDP.
The TDPs have also been amended recently to include confidentiality provisions and a sole benefit clause.
“The confidentiality provision mandates that a claimant’s submission to a respective trust and all associated information is to be treated in the course of settlement negotiations and is afforded all the applicable confidentiality privileges and protections. The sole benefit clause states that evidence submitted to a respective trust to establish proof of claim is for the sole benefit of the respective trust, not third parties or defendants in the tort system,” Scarcella and Kelso wrote.
They add that trusts have also established “presumptive” medical and exposure criteria in an effort to quickly determine whether a claim qualifies for payment. However, the resolution procedures have only allowed plaintiff attorneys to utilize the same claims material for multiple trust submissions, thus minimizing their filing costs per claim.
In his brief, Grier adds that he takes no position as to the appropriateness of the debtors’ treatment of claims based on its reorganization plan, reserving those arguments for another day.
Grier filed his brief supporting Garlock’s request for a bar date through attorneys Jonathan P. Guy of Orrick, Herrington & Sutcliffe LLP and A. Cotton Wright of Grier, Furr & Crisp.
From Legal Newsline: Reach Heather Isringhausen Gvillo at firstname.lastname@example.org