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January 13th, 2014

Federal Judge Calls out Rampant Fraud in Asbestos Claims

In an important ruling last Friday, U.S. Bankruptcy Judge George Hodges in North Carolina reduced an asbestos defendant’s liability by 90 percent, down to $125 million from $1.4 billion, finding that the larger amount had been based on fraudulent claims by scheming plaintiffs’ lawyers and their clients.  The defendant has now filed fraud claims against them.

According to Bloomberg-BusinessWeek‘s Paul Barrett, “Hodges cited, for example, what he called widespread evidence that many plaintiffs’ attorneys had for years concealed evidence that victims were exposed to potential carcinogens other than Garlock [Technologies’] asbestos-lined gaskets. The judge said that over the past decade, Garlock’s ‘participation in the tort system was infected by the manipulation of exposure evidence by plaintiffs and their lawyers.’”

As reported by Daniel Fisher of Forbes, Judge Hodges allowed Garlock “to conduct discovery on 15 settled cases, and discovered plaintiff lawyers had failed to disclose evidence Garlock could use in its defense in all 15. Garlock had negotiated settlements in 99% of some 20,000 asbestos lawsuits, the judge noted, but then as remaining defendants went bankrupt plaintiff lawyers escalated their demands at the same time as evidence of other exposures ‘disappeared.’ Lawyers control the bankruptcy trusts and refuse to allow those trusts to share claims information to cut down on double-dipping.”

Full text of Judge Hodges decision can be read here, and following below are particularly telling excerpts:

Trust Disclosure Manipulation:

  • The bankruptcy judge refuses to use Garlock’s settlement history as an accurate measure of its future liability because “the last ten years of its participation in the tort system was infected by the manipulation of exposure evidence by plaintiffs and their lawyers.”  (para. 50, p. 26).
  • This was easily done because “the exposure evidence is under the control of the plaintiffs’ lawyer rather than the plaintiff.” (para. 51(c), p. 27).
  • Once a tort defendant entered the bankruptcy system, “the evidence of exposure to those [defendants’] products also ‘disappeared.’  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 [in the tort system].”  (para. 58, p. 30).
  • “It was a regular practice by many plaintiffs’ firms to delay filing Trust claims for their clients so that remaining tort system defendants would not have that information.”  (para. 58(b) p. 30).
  • “In 15 settled cases, the court permitted Garlock to have full discovery.  Garlock demonstrated that exposure evidence was withheld in each and every one of them. . . . .  [O]n average plaintiffs disclosed only about 2 exposures to bankruptcy companies’ products, but after settling with Garlock made claims against about 19 such companies’ Trusts.”  (para. 58(c), p. 31, emphasis in original).
  • The court describes two cases in California, one in Philadelphia, one in New York and one in Texas in detail – in each case, exposure evidence and Trust claims evidence was withheld.  (paras. 60-64, pages 31-34).
  • The court provides a chart of the non-disclosures.  (Para. 65, page 34).
  • “[T]he fact that each and every one of them contains such demonstrable misrepresentation is surprising and persuasive.  More important is the fact that the pattern exposed in those cases appears to have been sufficiently widespread. . . .  Garlock identified 205 additional cases where the plaintiff’s discovery responses conflicted with one of the Trust claim processing facilities or balloting in bankruptcy cases.  . . .  It appears certain that more extensive discovery would show more extensive abuse.  But that is not necessary because the startling pattern of misrepresentation that has been shown is sufficiently persuasive.”  (Para. 66, p. 35).
  • “[R]elaxed Trust claiming rules do not explain or exculpate the ‘disappearance’ of exposure evidence noted here.  Whether ‘bare bones,’ ‘placeholder,’ or ‘presumptive’ the Trusts required some ‘meaningful and credible’ exposure evidence to pay a claim.  But, most important, 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 a tort case, but then later (and in some cases previously) to be able to identify it in Trust claims.”  (Para. 69, pp. 36-37) (emphasis in original).

Claiming Practices and Recoveries:

Based on a sample of 1300 claims and 850 questionnaires evaluated by the court:

  • “the typical claimant alleges exposure to products of 36 parties: 13 tort defendants (plus Garlock) and 22 Trusts.”  (Para. 101, p. 61).
  • “The total recovery by a typical claimant was estimated to be between $1 and $1.5 million, including an average of $560,000 in tort recoveries and about $600,000 from 22 Trusts.”  (Para. 102, pp. 61-62.

Science Issues:

  • “it is clear that under any scenario that chrysotile is far less toxic than other forms of asbestos.”  (para. 12, p. 9)
  • “there is no scientifically reliable connection between chrysotile exposure and mesothelioma.”  (para., 17, p. 11).
  • The court eviscerates the opinions of several standard plaintiffs’ experts, including Dr. Brody (p. 12-13), Dr. Longo (“Dr. Longo’s studies suffer from serious deficiencies and the court finds that they are not reliable”) (p. 18-20) and Drs. Brodkin and Welch (pp. 21-23).
  • The court also discusses the difference between safety and regulatory findings/requirements (and warnings based on those requirements) and the analysis necessary in a courtroom. (para. 47-48, pp. 24-25.)
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