Judge: Asbestos attorneys made 'startling' misrepresentations while pursuing claims

CHARLOTTE, N.C. (Legal Newsline) - A federal bankruptcy judge ruled Friday that asbestos attorneys have been withholding evidence while pursuing claims against Garlock Sealing Technologies and has ordered the company's bankruptcy trust to be much smaller than the $1 billion-plus figure for which the attorneys argued.

Judge George Hodges of U.S. Bankruptcy Court Western District of North Carolina concluded on Friday that the amount sufficient to satisfy Garlock Sealing Technologies' asbestos liability is $125 million, roughly $1 billion less than what plaintiffs' representatives felt was proper. Also, the judge used the order to criticize the manner in which the asbestos attorneys have been pursuing their clients' claims.

When insulation defendants filed bankruptcy, claimants focused their suits on Garlock while losing evidence to other asbestos exposure in the process, Hodges wrote. 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.

Garlock brought evidence to the bankruptcy 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. Evidence also showed one 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."

Garlock was also able to bring evidence proving that some plaintiffs who 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."

Witness testimonies revealing these double-dipping practices were mostly given during closed portions of the trial.

Attorneys for Legal Newsline appealed Hodges' decision to close the courtroom several times. Attorneys are challenging the decision under a First Amendment claim.

There were several cases in which trust claims were admitted as evidence. Three of those trials concluded in defense verdicts and one trial only found Garlock two percent liable.

Garlock continued settling cases but at higher amounts until its insurance was "exhausted" and it filed for bankruptcy in June 2010.

Garlock has sued the law firm Williams Kherkher Hart Boundas over its practices.

The case focused solely on Garlock's liability for mesothelioma victims and did not include any liability for other asbestos-related illnesses or claims against affiliate Anchor Packing Company.

According to the order, Garlock's products exhibited relatively low exposure to a limited population. The Sixth Circuit Court of North Carolina compared the exposure to a bucket of water as to the ocean's volume.

"Its legal responsibility for causing mesothelioma is relatively de minimus," Hodges states.

Garlock Sealing Technologies produced and sold asbestos-containing gaskets and gasket materials used in pipes and valves that transported 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 clarified.

The gaskets contained chrysotile asbestos and were surrounded by amosite asbestos insulation and loose amosite asbestos filler manufactured by other companies. The science evidence given in the case found that chrysotile asbestos fibers are far less toxic than other forms of asbestos and can be broken down in the body within days or weeks; whereas other fibers take months or years.

"So, across all potential claims, Garlock's liability for mesothelioma should be relatively small," Hodges states.

Garlock's gaskets only released asbestos when disturbed by cutting, scraping and grinding, among others. The order states that such disturbances "were done sporadically and then generally only after the removal of the thermal insulation products which caused a 'snowstorm' of asbestos dust."

"It is sufficient to conclude that Garlock has demonstrated that its products resulted in a relatively low exposure of a relatively lower potency asbestos to a limited population, and that the population exposed to Garlock's products was necessarily exposed to far greater quantities of higher potency asbestos from the products of others," Hodges concludes.

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. A majority of these claims were settled in groups with an average payout of $75,000 per claimant.

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.

An April 2012 Order for Estimation of Mesothelioma Claims "established the goal of reaching a 'reasonable and reliable estimate of the amount of Garlock's liability for present and future mesothelioma claims' and set the course for achieving Garlock's liability.

In an effort to estimate present and future mesothelioma claims, the plaintiffs' representatives offered a "settlement" approach "by way of statistical extrapolation form Garlock's history or resolution of mesothelioma claims," which focused on the history of claims handling practices, trends and developments in asbestos tort system.

However, the court determined that the settlement approach is inappropriate because, "the settlement history data does not accurately reflect fair settlements because exposure evidence was withheld. And Garlock's settlement data represents insignificant part cost avoidance rather than its liability."

"Following the settlement approach would be like valuing a trade creditor's claim by the cost of collection rather than the amount of the debt."

Garlock offered the "legal liability" approach, which is an "estimation that focused on the merits of claims. It forecast an estimation calculated by projecting the number of claimants based upon occupation groups and predicting the likelihood of recovery for separate groups to reach an aggregate damage amount, and then reducing that by other courses of recovery."

The court determined the proper measure is the liability approach, as resolution history does not weigh too heavily on the outcome.

"The end products of the two approaches differ by about a billion dollars: Garlock's estimate is about $125 million and the ACC/FCR estimates are $1-1.3 billion," Hodges wrote.

Involved in the bankruptcy case are more than 4,000 mesothelioma claimants who had sued Garlock prior to its filing, represented by the Asbestos Claimants Committee, ACC, and an unknown number of future claimants who will develop mesothelioma in the future, represented by a Future Claimants Representative, FCR.

The bankruptcy case was filed by Garlock in June 2010 and its affiliates: Anchor and Garrison Litigation Management Group, Ltd. The debtors in this case are subsidiaries of non-filing company Coltec Industries, Inc., which is a subsidiary of Enpro Industries, Inc.

The court reached its decision after a 17-day trial, 29 witnesses and hundreds of exhibits.

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