Heather Isringhausen Gvillo Jan. 15, 2014, 4:58pm

CHARLOTTE, N.C. (Legal Newsline) - The recent ruling in favor of Garlock Sealing Technologies in a North Carolina federal bankruptcy court shows the need to support the Furthering Asbestos Claim Transparency Act, or FACT Act, according to a House Judiciary Committee aide.

Judge George Hodges of the U.S. Bankruptcy Court Western District of North Carolina ruled on Jan. 10 that asbestos attorneys have been withholding evidence while pursuing claims against Garlock, ordering that the amount sufficient to satisfy the company's asbestos liability is $125 million, roughly $1 billion less than what plaintiffs' representatives felt was proper.

"Judge Hodges' decision compellingly demonstrates the threat posed by unchecked asbestos claim fraud," the aide said.

Despite its low exposure ratings, Garlock began getting sued in the tort system in the 1980s. It typically settled cases, settling more than 99 percent of the 20,000 mesothelioma cases. But then in the early 2000s, mesothelioma wrongful death claims gained focus and Garlock had to settle cases regardless of its actual liability to avoid risking a costly verdict in trial.

However, when insulation defendants filed bankruptcy, claimants focused their suits on Garlock, evidence to other asbestos exposure "disappeared" in the process. Garlock suffered large jury verdicts as a result.

"This occurrence was a result of the effort by some plaintiffs and their lawyers to withhold evidence of exposure to other asbestos products and to delay filing claims against bankrupt defendants' asbestos trusts until after obtaining recoveries from Garlock," Hodges states.

The FACT Act, if passed, would require asbestos trusts to release information on those seeking compensation due to asbestos exposure in quarterly reports. Republicans believe the Act would help reduce fraudulent claims.

The House passed the bill, H.R. 982, in a 221-199 vote on Nov. 13. The bill remained on the party line as only five Democrats voted for the Act.

The aide said the scope of the fraud unveiled in the Garlock case proves that action is necessary.

"(T)he Garlock case is further proof that enactment of the FACT Act is critical to combat fraud in the asbestos bankruptcy trust system," the aide said.

"The decision is a clear indication that the Senate and President need to act on the bipartisan House-passed bill to address this obvious problem before asbestos trust funds are completely depleted by fraud."

Prior to passing in the House, Democrats argued that the bill would require trusts to report sensitive information about asbestos claimants, which could encourage employment discrimination. Companies could use the report to avoid hiring victims in order to avoid similar asbestos lawsuits brought against the new employer, it was argued.

According to a statement issued by the White House in November, the mandatory reporting requirements would threaten victims' privacy.

During arguments in the House, Congresswoman Nancy Pelosi, D-Calif., said there is no evidence proving "systematic fraud" in the asbestos trust system and called the bill "mean-spirited."

However, during the bankruptcy trial, Garlock brought evidence to the hearing demonstrating that the last 10 years of its participation in the asbestos litigation system "was infected by the manipulation of exposure evidence by plaintiffs and their lawyers."

According to Garlock's evidence, one firm issued to its clients 23 pages of directions on how to testify. In another, a lawyer stated, "My duty to these clients is to maximize their recovery, okay, and the best way for me to maximize their recovery is to proceed against solvent viable non-bankrupt defendants first, and then, if appropriate, to proceed against bankrupt companies."

Hodges permitted Garlock to bring evidence proving that roughly 220 settled cases for large sums withheld evidence. Then after settlement, clients made claims against roughly 20 companies' trusts.

"It appears certain that more extensive discovery would show more extensive abuse," Hodges continued. "But that is not necessary because the startling pattern of misrepresentation that has been shown is sufficiently persuasive.

"While it is not suppression of evidence for a plaintiff to be unable to identify exposures, it is suppression of evidence for a plaintiff to be unable to identify exposure in the tort case, but then later to be able to identify it in Trust claims. It is that practice that prejudiced Garlock in the tort system."

Lester Brickman, professor at the Benjamin N. Cardozo School of Law of the Yeshiva University testified that Garlock has paid out more than $1.3 billion in asbestos claims.

Don Washington, Director of Corporate Communications for EnPro, of which Garlock is a subsidiary, said he is very pleased at how much Hodges focused on the malicious practices in the asbestos litigation system.

"It's certainly a very positive development," Washington said. "We're very pleased and gratified with this ruling. It comes after a lot of work and diligent effort by a lot of people."

From Legal Newsline: Reach Heather Isringhausen Gvillo by email at asbestos@legalnewsline.com

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