SANTA MONICA, Calif. – Mesothelioma plaintiffs identify a company as a possible source of asbestos less often after the company creates a bankruptcy trust, according to a new Rand Corporation study.
“Once two or more years has passed since the bankruptcy, a firm is substantially less likely to be identified than it would have if the same case had been filed prior to the firm’s bankruptcy,” Lloyd Dixon and Geoffery McGovern wrote.
Dixon and McGovern observed that plaintiffs have disincentives to develop evidence of exposure to the product of a bankrupt party.
“The failure of plaintiffs and defendants to identify all such exposures can mean that a remaining solvent defendant will pay more than it would if all exposures were identified,” they wrote.
“Failure to identify exposure to the products of bankrupt parties might also result in greater plaintiff compensation than otherwise from bankruptcy trusts and the tort case combined.”
A table showed that asbestos claims bankrupted 93 companies through 2010.
Dixon and McGovern wrote that the trusts held $18 billion in 2012.
“The fact that there are now bankruptcy trusts and solvent defendants has complicated the business of establishing liabilities and calculating the appropriate compensation due deserving plaintiffs in the tort system,” they wrote.
They studied New York state suits of 47 workers from a Navy yard in Brooklyn and California suits of 39 workers from a Navy yard at Puget Sound in Washington.
They obtained complaints, interrogatories and depositions from “defendants in a substantial number of personal injury cases.”
“Most of the defendants were sponsors of this study,” they wrote.
For the Brooklyn group, the odds of identifying any company fell from .785 within a year of bankruptcy to .306 in the second year and .168 after that.
For the Puget Sound group, the odds fell from 1.096 in the first year to .444 in the second year and .264 after that.
They offered a plausible explanation that attorneys familiar with a defendant might continue identifying it.
“Over time, however, new, younger attorneys come into the firm who might have no knowledge about the bankrupt party,” they wrote.
“The party is no longer named on the complaint, and the new attorneys have no reason to inquire into exposure to these firms’ products.
“A second potential explanation for gradual decline is hedging by plaintiffs’ attorneys on whether the bankruptcy will be approved.”
They wrote that confirmation of bankruptcy takes years, with a possibility that it will be denied and no trust will be set up.
In New York and California, asbestos case management orders include standard interrogatories that a plaintiff must answer under oath.
“There are differing views of whether these case management orders direct plaintiffs to disclose all exposures, to the products of bankrupt and solvent firms alike,” they wrote.
They shared their findings with plaintiff lawyers, who saw no problem.
“Some noted that it is appropriate for plaintiffs to focus on the solvent defendants that remain in the case and that, from the plaintiffs’ perspective, there would be no reason to proactively identify other sources of exposure,” they wrote.
Plaintiff attorneys told them the rules of civil procedure provide ample opportunity to explore exposure to products of bankrupt firms.
Defendants and defense attorneys, however, had different perspectives.
“Defendants argue that it is very difficult to establish exposure to an asbestos containing material absent a plaintiff’s statement, or coworker’s or family member’s, to that effect,” they wrote.
“In their experience, defendants are often better off paying higher settlements than paying the costs of litigating around missing exposure evidence.”
They wrote that judges often impose a time limit on a deposition, and there might be time to cover only exposures of parties active in the case.
They wrote that defendants argue for greater transparency regarding the claims submitted to trusts and the basis for payment.
Defendants told them trust claims should be filed before trial.
“There is currently no requirement in California regarding when a trust claim must be filed during a court case,” they wrote.
“A case management order in New York City requires plaintiffs to file all trust claims before trial in certain asbestos cases, but there are indications that compliance with the order is uneven.”
They wrote that defendants believe case management orders should require plaintiffs to identify all exposures to asbestos containing products, not just the products of companies they are pursuing in litigation.
They wrote that on April 7, a Los Angeles asbestos judge required plaintiffs “to disclose all facts relating to all of their alleged exposures to asbestos,” whether the facts relate to bankrupt or solvent entities.