BANKRUPTCY TRUST TRANSPARENCY: GARLOCK DECISION

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1 CLM 2016 SOUTHWEST CONFERENCE NOVEMBER 3-4, 2016 IN DALLAS, TEXAS BANKRUPTCY TRUST TRANSPARENCY: GARLOCK DECISION I. Historical Perspective. A. Johns-Manville, Bankruptcies, and Garlock. In 1982 the Reagan White House was carefully monitoring a developing economic crisis. The largest American asbestos manufacturer, Johns-Manville was considering bankruptcy. After filing for bankruptcy in 1982, Johns-Manville alerted the Reagan White House that it would be suing the United States Government for contribution and for suppressing knowledge of the hazards of asbestos. On July 20, 1983, one of Manville s counsels sent a courtesy copy of the lawsuit to Counsel for President Reagan. The courtesies quickly dissipated and both sides engaged in brutal litigation over the suppression of knowledge of the hazards of asbestos. Manville was joined by asbestos co-defendants Eagle Picher and UNR in the lawsuit. The filing of the Manville bankruptcy reverberated throughout the country. But it was only the beginning. In order to preserve enough assets to compensate current claimants and claimants forecasted to file against the trust decades into the future, the Manville bankruptcy produced a trust to administratively pay claimants in an expeditious manner. This trust mechanism would ultimately be codified into law under Section 524(g) of the bankruptcy code. Following Johns-Manville, other large asbestos companies also filed for bankruptcy due to asbestos claims, many of which manufactured, installed or distributed asbestos containing thermal insulation products. As these companies disappeared from the tort system, plaintiff law firms began to focus their cases on the remaining set of tort defendants. Although a great majority of the claimants were (and still are) exposed to the products of Johns-Manville and the other insulation defendants, the exposure allegations to those products all but disappeared after the bankruptcies and cases were instead focused on a new set of products and industries. In today s asbestos tort litigation the evidence of exposures to the products of bankrupt companies is often not disclosed. It is this suppression of allegations and evidence of claims to asbestos bankruptcy trusts that is at the heart of the Garlock bankruptcy ruling and a recent reform movement for transparency between the asbestos tort and bankruptcy systems.

2 B. Pre-2000 litigation. In the 1990s the filing of asbestos related lawsuits rose dramatically. To address these filings, a large group of defendants formed the Asbestos Claims Facility. 1 This group ultimately dissolved. A new group formed by the name of the Center for Claims Resolution (CCR). The purpose of both of these litigation collectives was to eliminate transaction costs by administratively settling large blocks of asbestos claims. Eventually the CCR dissolved. 2 Several insulations companies filed for bankruptcy in the 1990s, including Keane Corporation, Celotex, and Eagle Pitcher. Despite exposures to these companies dusty products, claimants and their attorneys could not initially recover money. C. Economics of recovering money: rise of gasket, equipment, and peripheral defendants. In the early 2000s many more insulation or related companies filed for bankruptcy: Pittsburgh Corning, W.R. Grace, GAF, Owens-Corning, USG, National Gypsum, Turner & Newell, Armstrong World Industries, and AC&S. 3 Thus, in the tort system a claimant could testify about exposures to these products but there would be no recovery, at least not yet. From the Plaintiff s perspective this created a dilemma because a tort defendant could minimize its liability exposure and decrease its settlement share by pointing to the testimony of exposures to the bankrupt insulation companies. Therefore, theories of liability began to be pressed more aggressively against equipment manufacturers and gasket and packing companies. Why? Because Plaintiffs could recover money from these defendants in the tort system. 4 II. In Re Garlock Sealing Technologies, LLC 5 decision: the search for true liability. A. The skewed litigation landscape and lack of transparency. Garlock was one of these defendants whose profile increased in the tort system. Garlock, among other defendants, found that insulation exposures disappeared. Garlock also found itself the subject of scientific studies that equated release of asbestos from gaskets as great as or greater than exposures from insulation. Faced with years of defending itself in a skewed tort system, Garlock filed for Bankruptcy. 1 In Re Garlock Sealing Technologies, LLC, 504 B.R. 71, 83 (2014). 2 Id. 3 Counsel previously represented a number of these entities in the tort system. 4 One example is that profiles of several of the lesser-known CCR defendants increased, also B.R. 71 (2014).

3 In bankruptcy, Garlock opted to establish its estimate of liability of mesothelioma based on its projection of legal liability that takes into consideration causation, limited exposure and the contribution of exposures to other products. 6 The Bankruptcy Court agreed that this was the best evidence, and rejected the Claimants estimation theory of aggregate liability based on Garlock s historic settlement values. 7 B. The disappearing exposures to insulation and dusty products. Perhaps a basis for rejecting the Claimant s estimation theory of aggregate liability based on historic settlement values was the Court s persuasion from the evidence that the litigation had been skewed and the exposures suppressed. 8 C. The reappearance of these exposures to bankrupt trusts defendants post litigation. Even more troubling to the Court was the reappearance of the exposures in the form of claims submissions to the bankrupt trusts for the purposes of obtaining compensation. 9 D. The Garlock evidence. i. Claimant s submissions (claim forms) to trusts. Garlock was granted full discovery in fifteen cases in which Garlock paid large sums of money. The Court recounted that in these cases on average Plaintiffs only disclosed two exposures to bankruptcy companies products, but after settling made claims against about 19 such companies Trusts. 10 ii. Ballots cast in other 524(g) plans of reorganization. Garlock sought and used ballots cast by claimants in other debtors bankruptcies. For example, in one case a plaintiff and his attorney denied exposure to Pittsburgh Corning s Unibestos. 11 It was discovered that seven months earlier they cast a ballot in the Pittsburgh Corning bankruptcy under penalty of perjury that Plaintiff had been exposed to Unibestos Id. at Id B.R. 71, (2014). 9 Id. 10 Id. at Unibestos is Amosite asbestos. 12 Id. at 84.

4 E. The battle for the Rule 2019 statements. Garlock fought for and obtained access to some Rule 2019 Statements. What is not known is what information was available to Garlock from these statements. Judge Fitzgerald of the Western District, Bankruptcy, denied access to the Rule 2019 statements. She was reversed on appeal, but ultimately Garlock was allowed access with restrictions. 13 F. Full discovery granted in fifteen cases: examples of case abuses cited by the Court. i. Denial of exposures by claimant. In a California case involving a former Navy machinist mate aboard a nuclear submarine, Garlock suffered a verdict of $9 million in actual damages. The plaintiff did not admit to any exposure from amphibole insulation, did not identify any specific insulation product and claimed that 100% of his work was on gaskets. Garlock attempted to show that he was exposed to Unibestos amphibole insulation manufactured by Pittsburgh Corning. The plaintiff denied that and the plaintiff's lawyer fought to keep Pittsburgh Corning off the verdict form and even affirmatively represented to the jury that there was no Unibestos insulation on the ship. But, discovery in this case disclosed that after that verdict, the plaintiff's lawyers filed 14 Trust claims, including several against amphibole insulation manufacturers. And most important, the same lawyers who represented to the jury that that there was no Unibestos insulation exposure had, seven months earlier, filed a ballot in the Pittsburgh Corning bankruptcy that certified under penalty of perjury that the plaintiff had been exposed to Unibestos insulation. In total, these lawyers failed to disclose exposure to 22 other asbestos products. 14 ii. Subsequent filings of claims for exposures to those previously denied. In another California case, Garlock settled with a former Navy electronics technician for $450,000. The plaintiff denied that he ever saw anyone installing or removing pipe insulation on his ship. After the settlement, the plaintiff's lawyers filed eleven Trust claims for him seven of those were based on declarations that he personally removed and replaced insulation and identified, by name, the insulation products to which he was exposed The Bankruptcy Court has denied requests, post-order, to disclose the evidence relied upon B.R. 71, 84 (2014). 15 Id. at 85.

5 iii. Denial of exposure by attorneys to the jury. In the California case cited in paragraph F.i. Plaintiff s attorneys denied to the jury any exposures to Unibestos despite admitting to it seven months earlier under penalty of perjury. 16 iv. Subsequent filing of ballot under penalty of perjury to same exposures. In the California case cited above, Plaintiff and its counsel filed a ballot admitting exposure under penalty of perjury. v. Answering interrogatories under oath denying knowledge of exposures. In a Philadelphia case involve[ing] a laborer and apprentice pipefitter in the Philadelphia shipyard [ ] Garlock settled for $250,000. The plaintiff did not identify exposure to any bankrupt companies' asbestos products. In answers to written interrogatories in the tort suit, the plaintiff's *85 lawyers stated that the plaintiff presently had no personal knowledge of such exposure. However, just six weeks earlier, those same lawyers had filed a statement in the Owens Corning bankruptcy case, sworn to by the plaintiff, that stated that he frequently, regularly and proximately breathed asbestos dust emitted from Owens Corning Fiberglas's Kaylo asbestoscontaining pipe covering. In total, this plaintiff's lawyer failed to disclose exposure to 20 different asbestos. vi. Discovering that claims were submitted prior to answering interrogatories. In a Texas case, the plaintiff received a $1.35 million verdict against Garlock upon the claim that his only asbestos exposure was to Garlock crocidolite gasket material. His responses to interrogatories disclosed no other product to which he was exposed. The plaintiff specifically denied any knowledge of the name Babcock & Wilcox and his attorneys represented to the jury that there was no evidence that his injury was caused by exposure to Owens Corning insulation. Garlock's discovery in this case demonstrated that the day before the plaintiff's denial of any knowledge of Babcock & Wilcox, his lawyers had filed a Trust claim against it on his behalf. Also, after the verdict, his lawyers filed a claim with the Owens Corning Trust. Both claims were paid upon the representation that the plaintiff had handled raw asbestos fibers and fabricated asbestos products from raw asbestos on a regular basis. 17 Another case in New York was settled by Garlock for $250,000 during trial. The plaintiff had denied any exposure to insulation products. After the case was settled, the B.R. 71, 84 (2014) B.R. 71, 85 (2014).

6 plaintiff's lawyers filed 23 Trust claims on his behalf eight of them were filed within twenty-four hours after the settlement. 18 G. Evidence supports Garlock s theory of estimation. The Court found that of the fifteen cases the 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 to have a significant impact on Garlock's settlement practices and results. [emphasis original] 19 III. The impact and how this information can be used. A. Transparency: establish the total exposures. The Garlock decision, among other things, is judicial recognition of the lack of transparency in the tort system-a problem that has plagued asbestos litigation for years. 20 If your state has a mechanism to require disclosure of trust claims, use it. Pursue information regarding claim submissions and exposures. Develop and use with Plaintiff s expert witnesses. B. Identify exposures not joined in lawsuit. There could be exposure testimony from entities that could be joined but not joined. Be aware of the opportunity to develop the testimony. Do not overlook Manville exposures. C. Identify exposures that could not be joined in lawsuit. Know the historical and bankrupt asbestos companies to examine the plaintiff or coworker. In a state in which bankrupts can be submitted to the jury, use the claims forms as evidence for submission. Do not overlook Manville exposures. D. Establish exposures that may weaken or negate substantial contributing factor. Develop the extent of exposures that could weaken or negate causation or substantial contributing factor. Obtain enough information to create an issue of comparison of exposures. Judge Hodges favored a quote that the [Garlock] exposure to an individual pipefitter s case... is as a bucket of water would be to the ocean s volume Id. at Id. at One former Judge has called for the Garlock decision to be required reading for all asbestos trial judges. The Garlock Decision Should be Required Reading for All Trial Court Judges in Asbestos Cases, American Journal of Trial Advocacy Vol. 37:479 (2014) B.R. 71, 73 (2014) (citing to Moeller v. Garlock Sealing Techs., LLC, 660 F.3d 950, (6 th Cir. 2011)).

7 E. Establish sole proximate cause. Do not overlook sole proximate cause and lose the opportunity to assert it by not developing the evidence. Be aware of it going into the key depositions. Look at the claim forms. Do not overlook VA claims. F. Establish bias. Bias takes many forms. Not disclosing exposures and then asking bankruptcy trusts for money based on exposures not disclosed can be devastating to a Plaintiff s case or settlement once it is discovered. G. Establish impeachment. Use of claim forms or other type evidence can be used to attack testimony, statements, written pleadings, or even responses to motions. H. Attack credibility of witnesses. Claim information can be used to attack the credibility of Plaintiff, his co-workers, or spouse. I. Establish factual and legal sufficiency of evidence to support jury submission. Not all Plaintiff s counsel will agree to the submission of bankrupt defendants to the jury if the forum allows for it. You need facts to support exposure under the relevant state law, submission to the jury, and to be sustained on appeal. J. Overcome Plaintiff s objections to submission of exposures to jury. Anticipate and expect objections to your attempts to submit dusty exposures to the jury. Be prepared at your first deposition. You will see it again later. K. Establish submission of claimant to jury on verdict form. Establish claimant s responsibility to himself and others. Scrutinize claim forms for exposure testimony. Consider sophistication of claimant. L. Establish exposures to examine Plaintiff s experts to obtain critical expert testimony from Plaintiff s experts. Establish exposure facts to get Plaintiff s experts to offer opinions that help you. Use the claim forms. See all above.

8 M. Reduce or minimize liability and allocation fairly in event of verdict. Establish exposures using all available evidence or lack of evidence to deliver a more complete and transparent picture to the jury. N. Establish offset, reduction, or settlement credits. Establish your full share of offsets, reduction, or settlement credits from all available evidence, including claim submissions and paid claims. O. Establish reckless disregard of bankrupt entity to compare to your client s conduct in the event of reckless disregard question. Establish exposure facts to the big dusties or other insulation companies. Once established, use the original suppression evidence from the historical big dusties to create reckless disregard on their part for comparison to your client. Their experts will admit to the historical suppression of evidence. Starts with the first deposition. P. Allocate settlement value fairly. Use claim forms and total exposure evidence to drive down settlement values. IV. Takeaways.