Garlock: One year later

By Heather Isringhausen Gvillo | Nov 29, 2014

CHARLOTTE, N.C. (Legal Newsline) - It’s been one year since the landmark Garlock Sealing Technologies decision was handed down by Bankruptcy Judge George Hodges, and the case has been used in support of public access arguments in the fight for bankruptcy transparency.

Since Hodges' Jan. 10 order out of the Bankruptcy Court for the Western District of North Carolina, the Garlock decision has gained attention in everything from courtrooms to classrooms to politics.

For example, not long after Hodges’ Garlock order, recurring asbestos defendant Crane Co. cited the Garlock estimation ruling to support its arguments in a Rhode Island court. Ultimately, the trial judge permitted discovery of claims forms filed by the plaintiff with various asbestos bankruptcy trusts. (Sweredoski v. Alfa Laval Inc.)

Furthermore, the Garlock decision has been raised as a battle cry for asbestos bankruptcy trust transparency laws.

“[Garlock] provides previously inaccessible, but long suspected, support for bankruptcy transparency as an essential component of the defense of every asbestos-related personal injury case in the tort system,” former Judge Peggy Ableman of the Delaware Superior Court said in an article for the Washington Legal Foundation’s autumn 2014 edition.  

On the national spectrum, the U.S. Senate currently sits on a proposed bill called the Furthering Asbestos Claim Transparency Act, or FACT Act. If passed, the bill would establish laws requiring asbestos trusts to release information on those seeking compensation due to asbestos exposure in quarterly reports.

Also, since the landmark decision, Wisconsin passed Assembly Bill 19, which requires plaintiffs to disclose claims they have filed or anticipate filing against asbestos trusts to prevent double dipping and ensure solvency of the asbestos trust.

While the bill had already been introduced prior to Hodges’ ruling, there is speculation among attorneys that the findings in Garlock may have played a role in getting the legislation passed.

Defense attorney Mark Behrens of Shook, Hardy & Bacon said the Garlock decision was not the determining factor but could be attributed for “helping to get the Wisconsin bill over the goal line.”

It all started when Garlock sought bankruptcy protection to escape what it claimed were escalated settlement awards and jury verdicts that were achieved by plaintiffs attorneys by withholding evidence of their clients' additional asbestos exposures. Garlock was joined by debtors Garrison Litigation Management Group and The Anchor Packing Company.

“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 stated in his order.

During the estimation hearing, Hodges permitted the gasket manufacturer full discovery into 15 select cases and partial discovery into more than 200 cases, revealing “a startling pattern of misrepresentation,” he wrote.

Based on Garlock’s discovery, Hodges ruled in favor of the debtor, ordering the debtors to put $125 million in its bankruptcy, which is roughly $1 billion less than what plaintiffs attorneys requested as Garlock’s liability.

Hodges concluded 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 evidence of their clients' exposure to asbestos-containing products manufactured by other companies in order to maximize recovery against Garlock.

“It appears certain that more extensive discovery would show more extensive abuse,” Hodges stated in his order.

 “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 Garlock’s findings, it filed four separate racketeering cases in the District Court for the Western District of North Carolina against asbestos plaintiffs firms accused of fraudulent activity in the tort system. Defendants in those cases include Belluck & Fox, Simon Greenstone, Waters & Kraus and Shein Law Center Ltd..

On Oct. 23, Magistrate Judge David S. Cayer ordered the information in those cases to be made available to the public. The cases are expected to be unsealed by Thursday after a redaction process.

Because a large portion of the estimation hearing was originally sealed, Legal Newsline fought for public access to the documents from the hearing by appealing the seal orders.

Legal Newsline’s first appeal came during the Garlock estimation trial in summer 2013 in response to Hodges’ decision to close portions of the trial and documents associated with it. It then filed an additional appeal seeking access to the evidence and sealed trial transcripts from the January 2014 decision.

U.S. District Judge Max O. Cogburn, Jr. ruled in favor of Legal Newsline and a group of asbestos defendants on July 23 when he concluded that evidence alleging fraud on the part of asbestos attorneys should not have been sealed.

Cogburn, a President Barack Obama-appointee who took the bench in 2011, ruled that sealing documents and witness testimony is the exception, not the rule, to handling confidential information. As a result, he reversed Hodges’ denial of the motions seeking access to evidence admitted under seal and remanded the proceedings back to the bankruptcy court with instructions on how to handle the unsealing process.

“As a gatekeeper, a judge must consider sealing as the exception to the rule, give the public notice of its intent to seal, require counsel to provide valid reasons for such extraordinary relief, and then explain that decision as well as the reason why less drastic alternatives were not employed,” Cogburn wrote.

After a battle lasting more than a year, Hodges unsealed essentially the entire record of the Garlock estimation proceeding at an Oct. 16 hearing. He ordered all documents pertaining to the Garlock bankruptcy proceeding to be unsealed and made available, effectively denying every motion to seal that had been filed by asbestos plaintiffs lawyers and Garlock before a Sept. 11 deadline. The documents at issue include evidence submitted by Garlock that allegedly showed a pervasive pattern of misrepresentation and suppression of evidence on the part of asbestos plaintiffs and their attorneys.

“This is the type of proceeding that would have historically been open, and public access would have served a positive role in the functioning of the court by enabling the public to evaluate the court’s decision based on all of the evidence rather than on simply part of it,” Hodges said at the hearing.

The sealed documents from the estimation hearing, however, are still undergoing a tedious, lengthy redaction process and is expected to be made available to the public sometime in April.

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

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