CHARLOTTE, N.C. (Legal Newsline) - In the Trump administration, at least, the government will no longer look the other way as asbestos lawyers negotiate lenient terms that make it easy for their current clients to get money at the expense of future claimants and federal entitlement programs.
The Justice Department last week used a law guaranteeing repayment of Medicare and Medicaid expenses to lay down a far more expansive marker in front of the lawyers who negotiate asbestos bankruptcy trusts, which are created for companies that would not be able to survive asbestos liability in civil courts.
The government’s unusually blunt statement of interest in the Kaiser Gypsum bankruptcy, long before any plan of reorganization has been approved, warns lawyers against including terms that make it hard to ferret out fraud and abuse, including confidentiality requirements that make it impossible to determine how much claimants have been paid and the basis for their claims.
Those and other provisions make it easier for plaintiffs to double- and triple-dip from multiple bankruptcy trusts, depleting assets. The Justice Department also warned it will be looking for excessive fees and may not allow claimants to deduct those fees from reimbursement due the government for Medicare and Medicaid expenses.
While the insurance companies that typically put up most of the money behind asbestos bankruptcy trusts have long required detailed language ensuring claimants comply with Medicare reimbursement rules, so the trusts aren't stuck paying benefits twice, “this is the first time we’ve seen the U.S. government affirmatively issuing a caveat to the people that are putting together a trust,” said Jacob (Jack) Cohn, a partner with Gordon & Rees in Philadelphia who represents asbestos defendants.
The Justice Department’s statement of interest largely tracks laws passed in 16 states and a proposed federal statute that would require asbestos trusts to reveal claims information as a means for reducing fraud and abuse. That pattern has been widely documented, including in a 2010 study by the RAND Institute that found 86% of the claims, representing 37% of money paid, went to plaintiffs who probably would win nothing in the tort system.
“Because Medicare will only be reimbursed if Trust funds remain available to pay legitimate asbestos claimants, the United States has a strong interest in ensuring the Trust maintains adequate safeguards so that it does not become depleted through fraud or mismanagement,” the Justice Dept. said in its statement of interest.
“What the U.S. government is saying is `Look, we know there is a bias toward making it really easy to get money out of these trusts. And that leads to us not getting our liens properly paid and we’re on to it and stop it,'" Cohn said.
Congress established asbestos bankruptcy trusts as an option for companies to manage claims under Section 524(g) of the Bankruptcy Code. The trusts are typically funded with a combination of insurance and defendant funds and overseen by plaintiff lawyers and their hand-picked trustees.
That has led to accusations the trusts serve the interests of current claimants at the expense of future ones, as well as well-documented examples of extravagant fees for the lawyers and trustees. (Those fees even made a cameo appearance in an episode of “Billions” that came strikingly close to describing the truth.)
In its statement of interest, the government said it will be watching the lawyers in the Kaiser case to make sure that if they include a quick-pay “settlement” option, they don’t charge their usual contingency fees. A significant percentage of such a recovery could be “grossly disproportionate to the work they have actually done,” the government said, and may not qualify as a “procurement cost” exempt from reimbursement.
The government also warned against appointing trustees whose “conflicts of interest can result in the dilution of funds flowing to claimants and under-reimbursement to the Medicare Trust Fund.”
By identifying many of the tactics lawyers use to push questionable claims through the bankruptcy trusts, the government is following up on letters by 19 state attorneys general calling for more transparency in the trusts.
Though the plan proposed by Kaiser’s creditors contains some protections, including reporting information to Medicare, neither the creditor nor the debtor plans have provisions notifying claimants of their obligation to repay Medicare expenditures. (Even Motley Rice, one of the biggest asbestos law firms, makes a note of it on its website.)
There is still a gaping loophole asbestos claimants can exploit, with the help of their lawyers. The law requiring Medicare reimbursement only covers claims based on injuries that occurred after Dec. 5, 1980. Given that the most dangerous asbestos products were taken off the market in the 1970s or earlier, it won’t be hard for plaintiffs to claim their disease stems from a pre-1980 exposure, Cohn said.
Plaintiff lawyers are already wise to this, he said, and “that’s why most of the claims in the tort system end on Dec. 5, 1980.”