WILMINGTON, Del. (Legal Newsline) - The judge overseeing the bankruptcy of the Boy Scouts of America has expressed increasing skepticism about tens of thousands of sexual abuse claims filed before a critical deadline last year that insurers who are picking up most of the $1.9 billion restructuring tab say are riddled with robosigned and potentially fraudulent allegations.
In hearings this week over the Boy Scouts bankruptcy as well as the bankruptcy of a company that supplied talc to Johnson & Johnson, U.S. Bankruptcy Judge Laurie Selber Silverstein in Delaware confronted a growing problem in cases that combine mass torts with bankruptcy reorganization. Plaintiff lawyers, many of whom have made a specialty of suing over asbestos, flood the court with claims they obtained from marketing firms known as aggregators, hoping to use the voting process embedded in bankruptcy rules to gain control of the reorganization and steer money to their clients – and themselves, in the form of fees.
Earlier this month, Judge Silverstein ordered a probe into handful of aggregators who used an extensive advertising campaign costing tens of millions of dollars to recruit the bulk of some 80,000 abuse claims plaintiff lawyers filed against the Boy Scouts last year. Insurers served subpoenas on aggregators Verus Claims Services, Consumer Attorney Marketing Group and Stratos Legal, as well as claims administrator Archer Systems. Those subpoenas order the firms to hand over documents detailing the claim forms they submitted to the bankruptcy administrator, their contacts with law firms, financial arrangements and procedures for recruiting clients and vetting their claims.
Insurers led by Century Indemnity and The Hartford have pressed Judge Silverstein for months to dig into allegations plaintiff a group of lawyers calling themselves Abused in Scouting or the Coalition submitted thousands of questionable claims, sometimes signing hundreds of forms a day with little to no substantiating documentation. Those allegations gained support last month when Timothy Kosnoff, one of the founders of the Coalition, acknowledged in a letter to the judge that an unnamed law firm had placed his electronic signature on “dozens” of claim forms without his knowledge or permission.
“We now know there are proofs of claim tainted by fraud, though we do not know how many,” Century said in a letter urging the court to authorize more investigation. “Thousands of claims have come in that will, without any scrutiny at all, control the vote in this case and be eligible to receive payment” under the terms of the bankruptcy reorganization.
In hearings this week, the insurers joined with some plaintiff lawyers in asking for a delay in approving the disclosure statement accompanying the Boy Scouts reorganization plan until they receive the responses to those subpoenas. Among other things, the insurers want to uncover any financial arrangements between marketing firms and lawyers, including agreements to share fee income, and to examine their processes for evaluating claims.
The marketing firms are some of the nation’s most prolific recruiters of plaintiffs for mass-tort litigation over products including Roundup, 3M earplugs, JUUL e-cigarettes and Zantac. Law firms often pay them thousands of dollars for the names of potential clients, which they use as leverage in settlement negotiations. The judge overseeing 3M earplug litigation issued a similar order in March against a client-recruiting firm called Top Class Actions.
Earlier this year, the insurers asked the judge to perform a random sampling of claims to determine whether a significant number were fraudulent. The judge never ruled on that request, but on Sept. 9 she ordered the marketing firms to file responses to the subpoenas by Sept. 29. In an odd coincidence, Judge Silverstein confronted similar allegations of questionable claims in the bankruptcy of Imerys, a talc supplier that filed for reorganization after being hit with thousands of lawsuits accusing it of selling asbestos-tainted talc.
In a hearing Monday, the judge heard testimony from Thomas Bevan, an asbestos lawyer who submitted votes on behalf of more than 15,000 plaintiffs he said had claims against Imerys. In hours of withering questioning, Bevan admitted he dumped nearly his entire client list into the bankruptcy proceedings, including plaintiffs who had died long ago and suffered from illnesses that would not be compensated under the Imerys plan. Judge Silverstein said little during the proceedings but observed in great detail how plaintiff lawyers can flood a bankruptcy with poorly documented claims and wrest control from other creditors.
The judge will have to decide eventually in the Boy Scouts case how many of the 95,000 or so abuse claims represent legitimate votes to approve or reject reorganization plans, although bankruptcy courts are ill-equipped to perform deep forensic analysis into such a large group of claims.
After presenting a uniform front for months in the Boy Scouts reorganization, the lawyers in the Coalition appear to have fallen out among themselves. In his Aug. 9 statement to the court, Kosnoff described how he retired from the law, bought a boat and sailed to Puerto Rico, only to “un-retire from the practice of law” so he could pursue Boy Scouts abuse claims.
Kosnoff said he joined forces with Philadelphia personal injury lawyer Stewart Eisenberg and Andrew Van Arsdale, a lawyer who is also part-owner of Reciprocity, a client-recruitment firm. (In a filing earlier this year, Century cited an affidavit by a former Reciprocity employee who said she and her co-workers processed tens of thousands of claims and were offered bonuses for recruiting claimants. Van Arsdale dismissed her claims as “completely unbelievable.”)
“The three firms worked closely together crafting the first television advertisement, which aired in February or March 2019,” Kosnoff wrote, and eventually recruited some 80,000 clients, dwarfing the 2,000 or so claims the Boy Scouts estimated at the outset of bankruptcy.
Kosnoff said he fell out with his colleagues after they endorsed a settlement plan that will pay claimants different amounts based upon the laws in their state – some states have strict statutes of limitation on abuse claims, others not – and available insurance. He still represents more than 15,000 claimants.