Flake introduces Senate version of bill seeking transparency in asbestos bankruptcy trusts

By Heather Isringhausen Gvillo | May 13, 2014

WASHINGTON (Legal Newsline) - Exactly six months after the U.S. House of Representatives passed the Furthering Asbestos Claims Transparency Act, U.S. Senator Jeff Flake, R-Ariz., has introduced The FACT Act of 2014 - the Senate's version of the bill.

WASHINGTON (Legal Newsline) - Exactly six months after the U.S. House of Representatives passed the Furthering Asbestos Claims Transparency Act, U.S. Senator Jeff Flake, R-Ariz., has introduced The FACT Act of 2014 - the Senate's version of the bill.

Flake introduced the bill to the Senate, officially titled S. 2319, on Monday.

The bill requests an amendment to title 11 of the United States Code, requiring public disclosure by asbestos bankruptcy settlement trusts, which were set up to provide compensation to asbestos victims from companies that were once asbestos defendants before declaring bankruptcy.

If passed, the bill would require asbestos bankruptcy trusts to release information on those seeking compensation due to asbestos exposure in quarterly reports, including "detailed information regarding the receipt and disposition of claims for injuries on exposure to asbestos, and for other purposes."

The bill would require the quarterly reports to be made on the court's public docket, specifically disclosing the names, exposure history and basis for any payment from the trust of those who have filed a claim with each trust.

However, the bill prohibits the disclosure of confidential medical records and full social security numbers of claimants in order to protect their privacy rights.

The bill further requires such reports "upon written requests, and subject to payment (demanded at the option of the trust) for any reasonable cost incurred by the trust to comply with such request [and] provide ... any information related to payment from, and demands for payment from, the trust ... to any party to any action in law or equity if the subject of such action concerns liability for asbestos exposure."

The release states that the bill would provide increased transparency, preventing fraud and ensuring that bankruptcy trusts are able to fully compensate future claimants.

"Congress must act now to increase transparency and combat fraud within the asbestos-settlement system if future victims of asbestos-related injuries are to be protected," Flake stated in a press release.

The Senate bill is identical to a companion House bill, officially titled H.R. 982.

H.R. 982 was introduced by Rep. Blake Farenthold, R-Texas, on March 6, 2013 and was passed in a 221-199 vote on Nov. 13. The bill remained mostly on the party line as only five Democrats voted for the Act. It was then sent to the Senate for approval.

Rather than decide on the House bill, Flake, a member of the Judiciary Committee, introduced a Senate version of the FACT Act.

According to a 2011 Government Accountability Office report, roughly 60 company-created asbestos trusts with about $37 billion in total assets have been established to compensate injured victims. The trusts ensure payment for asbestos claims while protecting companies from extinction.

According to the release, "the lack of transparency and oversight of these trusts have resulted in a system where claimants can file inconsistent claims among the numerous trusts or against trusts and solvent companies in the tort system. This lack of transparency threatens the ability of future claimants to receive full compensation for their injuries."

Prior to the FACT Act's 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.

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

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

However, not long after the FACT Act was passed in the House, Judge George Hodges of the U.S. Bankruptcy Court Western District of North Carolina ruled that asbestos attorneys have been withholding evidence while pursusing claims against gasket manufacturer Garlock Sealing Technologies.

On Jan. 10, Hodges ordered 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.

During the bankruptcy trial, Garlock brought evidence to the hearing demonstrating that the last ten 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 cases settled 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."

As a result of the bankruptcy ruling, several asbestos defendants and insurance companies that believe they may have been victimized by the withheld evidence have fought for access to sealed information evidencing "demonstrable misrepresentations." Legal Newsline is also seeking the evidence submitted by Garlock.

Hodges ruled on May 6 that Rule 2019 filings must be disclosed to Ford Motor Company.

The Official Committee of Asbestos Personal Injury Claimants objected to the move, but Hodges concluded that the Rule 2019 Filings are public record available for examination.

According to the Federal Rule of Bankruptcy Procedure 2019, lawyers are required to make certain disclosures about clients' claims against the bankrupt company, including prices paid for the debt and the date of acquisition.

Lawyers are not required to submit Rule 2019 filings unless ordered by the court.

Hodges ordered that the movants are also entitled to the last four digits of the social security numbers contained in the Rule 2019 filings, but they are ordered not to review any additional digits that may accidently be provided.

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

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