WILMINGTON, Del. (Legal Newsline) – Despite similar allegations and circumstances surrounding the Bondex International, Inc. and Garlock Sealing Technologies bankruptcy proceedings, the two cases reached very different judgments, bringing into question why.
For starters, both companies sought Chapter 11 bankruptcy protection after litigating hundreds of thousands of asbestos cases in courtrooms across the country. However, the judge in Bondex's proceeding ordered it to put $1.16 billion into a bankruptcy trust, while the judge in Garlock's case ordered it earlier this year to put only $125 million in one.
On July 28, RPM International Inc. announced an agreement with the bankruptcy representatives of current and future claimants in order to resolve Bondex-related asbestos liability. According to the agreement, RPM would pay $797.5 million over four years and resolve all present and future asbestos personal injury claims related to its subsidiary Bondex International, Inc. The case is currently being litigated in the U.S. Bankruptcy Court in Delaware.
On the other hand, Judge George Hodges of the U.S. Bankruptcy Court for the Western District of North Carolina concluded on Jan. 10 that Garlock needed to put $125 million in its bankruptcy trust, which is more than $1 billion less than what plaintiffs’ attorneys requested as Garlock’s liability.
Also, both companies claim their products exhibited relatively low asbestos exposure to a limited population.
Professor Lester Brickman, with the Benjamin N. Cardozo School of Law of the Yeshiva University, agreed, saying both companies were “a very minor player in causing high level exposures to the most intensely toxic forms of asbestos,” but were, nonetheless, hit with a large number of lawsuits because they were still solvent companies that could be taken to trial.
Bondex manufactured joint compound, which contained chrysotile asbestos, for do-it-yourself home projects.
A Bondex expert testified that most mesothelioma claimants alleged exposures in industrial and commercial settings rather than from residential projects.
Likewise, Garlock produced and sold asbestos-containing gaskets and gasket materials used in pipes and valves to transport hot fluids.
“Its products spent their working lives bolted between steel flanges or valves and generally wrapped with asbestos thermal insulation produced by other manufacturers,” Hodges wrote in his ruling. “So, across all potential claims, Garlock’s liability for mesothelioma should be relatively small.”
Also, both companies claimed their settlement histories were not reliable when determining their liability to current and future claimants because plaintiffs’ attorneys focused their lawsuits on the solvent companies while losing evidence to other asbestos exposure in order to maximize recovery against the defendants.
In fact, Bondex’s agreement stemmed from a May 2013 ruling by Former U.S. Bankruptcy Judge Judith Fitzgerald, in which she estimated Bondex’s liability at $1.6 billion. However, Bondex argued during the estimation proceedings that its actual liability amounted to $135 million.
RPM appealed the decision to the U.S. Court of Appeals for the Third Circuit, arguing Fitzgerald reached the escalated number by placing too much weight on past settlement agreements. Many of those settlements were reached to push aside nuisance lawsuits, Bondex said.
Fitzgerald was unconvinced. In her opinion, she explained that the debtors would settle claims even when a plaintiff’s argument was weak, the risk of trial was too high or if the plaintiff’s product identification was sufficient enough to survive summary judgment. Therefore, she held that the debtors’ market share was not accurate enough to govern liability.
"[I]f a mesothelioma claim was settled by debtors for a nominal amount, there must have been some evidence of exposure against other defendants in the tort system but, because debtors made a payment nonetheless, debtors must have determined that the claimant either was exposed to a Bondex product or that Bondex was not going to contest exposure," Fitzgerald wrote.
"That is, the settlement indicates that Bondex was either agreeing that there was some liability, which would be its defense in the tort system. Therefore, the settlements are relevant to estimation because they place a value on the claims.”
Prior to the RPM/Bondex estimation proceeding, the debtors filed discovery requests for access to information from the plaintiffs’ firms that had filed asbestos claims against them.
The debtors wanted the information so its expert, the Bates White economic consulting firm, could determine their appropriate liability. The information would help the debtors “compare the magnitude of recovery from asbestos trusts with the claimants’ ‘expected aggregate tort system recoveries.’”
The debtors alleged that the information would show they settled pre-petition claims on an inflated basis, even though they conceded they investigated the claims before they settled.
The plaintiffs objected, claiming discovery would be burdensome and beyond what the debtors needed in order to establish a trust.
They also argued that the information was confidential and had no relevance to the debtors’ liability.
Fitzgerald agreed and denied the debtors request for discovery.
On the other hand, Hodges allowed Garlock to follow through with its allegations and provide discovery alleging fraudulent suppression of evidence.
“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 concluded.
However, Brickman explained that while there are “significant” similarities between the two cases, it is important to note that they are not identical.
“Making a direct comparison between the two proceedings would be untenable,” he stated.
Bankruptcy attorney David Christian, founder of the David Christian Attorneys law firm, agreed that the two cases may have had similar litigation histories and discovery requests but noted their very different arguments for wanting access to the claimants’ information.
He explained that Garlock wants to prove alleged fraudulent activity occurring behind closed doors, while Bondex sought the information in order to show there is a finite amount of liability to the claimants.
In other words, Bondex wanted to prove that it was paying higher settlements because most defendants had bankruptcy protection. Its intentions weren't to allege or prove fraud, Christian said.
Ultimately, Brickman speculated that the different conclusions arising out of the two bankruptcies can be attributed to Garlock’s counsel’s relentless efforts to bring the court’s attention to evidence of fraudulent suppression and a thorough discovery plan.
The Robinson, Bradshaw & Hinsen law firm represented Garlock in its bankruptcy proceeding. Brickman explained that the firm devised an extensive and comprehensive discovery and trial plan that he says successfully uncovered pervasive fraud in the tort cases brought against Garlock that had primarily been settled.
Furthermore, Brickman explained that in the early stages during the Garlock bankruptcy proceeding, Hodges typically sided with the Garlock Asbestos Claims Committee (ACC) by denying Garlock’s repeated efforts to conduct discovery into allegations that plaintiffs who had sued Garlock also filed several bankruptcy trust claims.
“The ACC bankruptcy counsel repeatedly and successfully argued that allowing the discovery being sought by the debtor would be a waste of debtor’s assets,” Brickman stated.
However, he added, Garlock’s counsel persisted in bringing the evidence to the judge’s attention, which it claimed uncovered fraudulent suppression of trust claim filings.
In fact, the last 10 years of Garlock’s participation in the asbestos litigation system, before the debtor filed for bankruptcy in 2010, “was infected by the manipulation of exposure evidence by plaintiffs and their lawyers,” Hodges wrote.
Brickman added that plaintiffs’ lawyers especially denied asbestos exposures to the “Big Dusties” that had gone into bankruptcy in 2000 and 2001, which included asbestos insulation manufacturers.
Despite “strenuous objection of counsel” for the ACC, Garlock was permitted limited discovery of 15 mesothelioma plaintiffs’ counsel who had obtained “big dollars” in lawsuits against Garlock by successfully arguing that the claimants had no other exposures than those to Garlock’s gaskets.
“At the same time, these same plaintiffs were filing claims with 15-20 bankruptcy trusts, stating under oath that they had ‘meaningful and credible exposures’ to the very products that they had denied being exposed to when Garlock deposed them,” Brickman explained.
Hodges also permitted Garlock to bring partial evidence of more than 200 additional settled cases, also revealing withheld evidence.
“It appears certain that more extensive discovery would show more extensive abuse,” Hodges wrote. “But that is not necessary because the startling pattern of misrepresentation that has been shown is sufficiently persuasive.”
While Bondex and Garlock made the same allegations, Brickman said Garlock’s discovery unveils practices that occur behind the bankruptcy trust’s protective doors.
“What Garlock did with that limited discovery, no asbestos debtor had done before with regard to mesothelioma litigation: open Pandora’s Box to allow the practice of suppressing evidence of exposure to the products of bankrupt companies to come to light,” Brickman said. “The rest is history.”
Christian added that because Garlock was allowed discovery, the case has the potential to become a “game changer” in the asbestos tort system.
“If they can confirm a plan over the objections of the plaintiffs, that would be incredibly dramatic,” he said. “In that event, you will see other companies use that in their playbook.”
Garlock has filed several RICO claims against the plaintiffs’ firms accused of participating in misconduct.
From Legal Newsline: Reach Heather Isringhausen Gvillo at asbestos@legalnewsline.com
A look at two rulings $1B apart in bankruptcy proceedings of Garlock, Bondex
