SALT LAKE CITY (Legal Newsline) — A Utah judge has dismissed a complaint from a number of states that the four biggest asbestos trusts and the trial lawyers who run them failed to answer claims they were mismanaging the funds, Legal Newsline has found.
The complaint, first filed by Utah's attorney general, was dismissed by a Salt Lake City-based judge Sept. 11 and targets the actions of the trusts' Future Claims Representatives and Trust Advisory Committees.
"The TACs, comprised of asbestos plaintiffs’ attorneys largely from a handful of prominent firms, have outsized power over the billions of dollars in the trust system," it says.
"They represent a large proportion of current asbestos claimants, and so vote on their behalf in approving the governing documents. Thus, the evidentiary requirements for claims — such as the claimant’s work history and proof of exposure — are primarily controlled by the same attorneys who collect contingency fees on millions of dollars of claims paid from a trust each year."
No written order has been issued, but one of the arguments made by the defendants was that a landmark U.S. Supreme Court ruling, handed down after the complaint was filed, meant that Utah lacked jurisdiction to handle the complaint.
That ruling, in a case involving drug company Bristol-Myers Squibb, bars plaintiffs from suing in a state in which they have little or no connection. It means that the four trusts do not have to reply to the civil investigation demands (CIDs) sent by 13 states asking for detailed information on how they are managed.
The trusts – set up by bankruptcy courts to manage claims against Armstrong World Industries, Babcock & Wilcox, DII Industries and Owens Corning/Fibreboard – were sent the demands as Utah and the other states believed they were being mismanaged and abuse was occurring.
The hearing of the defense counsel's motion to dismiss took place before Judge Robert Faust in the 3rd Judicial District Court in Salt Lake City.
Utah's original complaint was filed in early March as it sought information on whether the trusts are failing to reimburse states for Medicare and Medicaid. Federal law requires those who oversee settlements to pay outstanding bills for Medicare coverage.
The trusts, whose operations are overseen by trial lawyers, replied the following month.
They argued lack of jurisdiction – three of the trusts are based in Delaware, and one is in Pennsylvania – and that the requests for millions of documents was "overbroad" and could infringe privacy rights.
But it was a "supplement authority" filing by the trusts that looks to have been crucial to the decision to dismiss. The filing argued that a U.S Supreme Court ruling in June cemented the argument that Utah and other states that joined the complaint lacked jurisdiction in the case.
The Supreme Court ruling sided with Bristol-Myers Squibb in a case involving litigation by hundreds of out-of-state plaintiffs over claims they were injured by the drug Plavix.
The justices, by an 8-1 margin, found that the out-of-state complainants could not sue in California because they had no link to the state and that Bristol-Myers Squibb was headquartered elsewhere.
That decision, heralded as a victory by business groups, was a blow to trial lawyers who want to pick more friendly jurisdictions.
Now, the trusts, which are advised by some of the most prominent groups in the country - including Weitz & Luxenberg in New York City and Baron & Budd in Dallas - have used the Supreme Court ruling to head off this civil investigation of their management.
Kekst and Co., a New York City communications firm that handles media requests for the trusts, did not reply to messages asking for comment.
Utah Attorney General Sean Reyes has 30 days from the date of the dismissal to file an appeal. Faust asked the defendants to draw up an order for him to review and then enter.
"It is my understanding that the judge has not yet entered an order, but we will consider our options once the order is entered," Dan Burton of the Utah Attorney General's office told Legal Newsline.
The complaint was that the trusts failed to respond to the CIDs and must reply. The dismissal means they do not now have to do so.
In the complaint, Utah's attorney general said that "plaintiffs’ attorneys across the country are using asbestos trusts to obtain significant monetary recovery for claims, even where they would fail in the tort system.
"The abuse injures states by improperly draining the trust assets, precluding future legitimate claimants from relying on asbestos trusts, and leaving states with the high cost associated with asbestos-related disease."
Crucially, the complaint raised the Medicare Secondary Payer statute and pondered whether "asbestos trust handlers are ensuring that medical assistance programs are being reimbursed for payments made from the trusts." It stated that the CIDs were issued as part of a joint Medicaid fraud investigation.
This law carries penalties for insurers and others who arrange for lawsuit settlements to be paid directly to claimants without making sure they first settle outstanding bills for Medicare coverage.
Penalties can include double damages and even plaintiff attorneys can be liable, Frank Qesada, an attorney with MSP Recovery, a Miami law firm that has filed numerous national class actions on behalf of private Medicare providers, told Forbes.
More than 60 companies have established trusts, which have paid out roughly $17 billion since 2008. The trusts are overseen by trust advisory committees (TACs) and future claims representatives.
The complaint noted that the TACs were comprised of "asbestos plaintiffs’ attorneys largely from a handful of prominent firms" that have "outsized power over the billions of dollars in the trust system."
While the trusts appear to have won this first round, Utah may appeal. And there are a number of similar cases pending.
In September 2016, Aetna, Humana and United HealthCare Services filed actions against six law firms specializing in asbestos cases with a $19 million suit in Texas federal court. They claimed the firms avoided reimbursing the insurers for medical coverage that insureds received before pocketing settlement payments.
And earlier this year, General Motors sued asbestos trusts in Delaware, New York and Pennsylvania bankruptcy courts seeking recovery of trust money paid to the estate of an employee who also received workers’ compensation payments from the automaker to settle asbestos-exposure claims.