Heather Isringhausen Gvillo Sep. 26, 2014, 9:31am

WILMINGTON, Del. (Legal Newsline) – When the next asbestos-related bankruptcy occurs, the Garlock Sealing Technologies case and Bondex International case will provide the debtor with two separate approaches for resolving disputes over asbestos liability.

“What approach (debtors) adopt (in future bankruptcy proceedings) will be determined by what there is to protect, personalities of the players involved and their assessment of the best way to get the desired outcome and liabilities,” bankruptcy attorney David Christian said.

He added that debtors will also select their approach to bankruptcy proceedings based on how “aggressive” Garlock is in getting its plan of reorganization approved, “if it is more palatable to these decision-makers.”

Garlock’s approach to estimating liability in bankruptcy court highlights its fight to prove plaintiffs attorneys engaged in fraudulent activity during asbestos litigation over the years leading up to its bankruptcy in order to increase settlement amounts.

On Jan. 10, Judge George Hodges of the U.S. Bankruptcy Court for the Western District of North Carolina concluded 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.

Hodges ruled that the amount of previous awards and settlements paid by the company in the civil justice system were not reliable because plaintiffs attorneys had withheld exposure evidence in order to maximize recovery against Garlock.

“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 wrote.

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

Bondex, on the other hand, chose to reach a settlement agreement in an effort to protect its parent company, RPM International Inc.

On July 28, RPM announced its agreement with the bankruptcy representatives of current and future asbestos 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. The case is currently being litigated in the U.S. Bankruptcy Court in Delaware.

Christian, founder of the David Christian Attorneys law firm, said that Bondex’s approach to bankruptcy estimation can grow out of Garlock’s approach to bankruptcy estimation.

“History teaches us that there are debtors who go into chapter 11 [bankruptcy] saying they will fight,” he said, “but they get a better deal often for the sake of protecting equity.”

This is exemplified by Bondex, which started out with a disagreement over its liability before ultimately cutting a deal.

Bondex’s settlement stemmed from a May 2013 ruling by former U.S. Bankruptcy Judge Judith Fitzgerald, who estimated Bondex’s liability at $1.166 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. In fact, many of those settlements were reached to push aside nuisance lawsuits, it claimed.

Fitzgerald was unconvinced, concluding that “if 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. 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 have filed asbestos claims against them in order to determine their appropriate liability.

The debtors argued that the information would have shown they settled prepetition claims on an inflated basis, even though they concede they investigated the claims before they settled.

The plaintiffs objected, claiming discovery would be burdensome and beyond what the debtors need 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.

Christian added that the Garlock bankruptcy proceeding isn’t over, and that the debtors may still follow in Bondex’s footsteps if its plan of reorganization isn’t approved by the asbestos claimants voting on the matter.

“While it’s true that there are chapter 11 debtors that adopted a much more cooperative attitude with their claimant constituencies,” Christian said, “the lesson of the last decade-and-a-half is that ultimately, a deal gets cut.”

He added that while companies typically settle, the terms of the deals will vary the outcomes for each debtor.

Christian doesn't think all remaining solvent asbestos defendants will enter bankruptcy protection

“I don’t expect every defendant to end up in bankruptcy,” he said, “but I expect that it is a tool that will continue to be on the menu and will be used by some.”

Christian explained that the bankruptcy tool will continue to be attractive depending on how much insurance a company has left, especially if an asbestos defendant has a wealthy parent that needs a shield of liability.

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

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