Issue By: Thomas LoSavio
tlosavio@lowball.com
www.lowball.com

ASBESTOS BANKRUPTCY TRUSTS AND LEGISLATION

By Thomas LoSavio

When asbestos litigation became extremely costly to defend, to settle and to pay judgments, companies began filing for protection under the Bankruptcy laws. In the three decades since Johns Manville and UNR Industries filed the first asbestos bankruptcy cases, nearly 100 companies have filed for bankruptcy protection due, in part, to asbestos litigation.[1] The vast majority of these companies utilized section 524(g) to reorganize and establish a bankruptcy trust to pay current and future asbestos claimants and channel claims away from the reorganized company. Today, many of these companies have emerged from the 524(g) bankruptcy process, leaving in their place dozens of trusts funded with tens of billions in assets to pay claims. Since 2006 more than 30 trusts have been created through bankruptcy reorganization, funding the trust system with an additional $20 billion in assets. From 2006 through 2012 the entire trust system has paid out over $15 billion to asbestos claimants, with remaining assets as of year-end totaling over $18 billion.[2] In addition, there is approximately $11 to $12 billion in proposed funding from bankruptcies still pending confirmation.[3]

The asbestos trusts operate in parallel with the traditional tort system and offer only rudimentary reports on the claims they receive and pay. As a result, plaintiffs’ attorneys are sometimes able to hide the fact that a single individual is making multiple claims, citing different and contradictory exposure facts, against multiple trusts and solvent companies. This “double dipping” exposes innocent businesses to abusive lawsuits and draws down the trusts’ funds intended for other claimants.

The Furthering Asbestos Claim Transparency (FACT) Act of 2015 was introduced in the U.S. House of Representatives by Rep. Blake Farenthold of Texas on January 26, 2015 and assigned to the House Judiciary Committee. A hearing on the FACT Act was held on February 4, 2015 by the United States House Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law. On May 14, the bill was voted out of the Judiciary Committee, 19-9, and was sent to be voted on by the full House of Representatives. In December 2015, the FACT Act was added onto another U.S. House bill, H.R. 1927 (the Fairness in Class Action Litigation Act), and became Section 3 of H.R. 1927. The bill was renamed the “Fairness in Class Action Litigation and Furthering Asbestos Claim Transparency Act of 2016.” On January 8, 2016, the U.S. House of Representatives passed H.R. 1927 by a vote of 211 to 188. The vote was largely along party lines, with no Democrats voting for it and sixteen Republicans voting against it. As of January 11, 2016, the Bill had been received in the Senate and referred to the Committee on the Judiciary.

According to a Statement of Administration Policy, issued by the Office of Management and Budget on January 6, 2016, “The [Obama] Administration strongly opposes House passage of H.R. 1927 because it would impair the enforcement of important federal laws, constrain access to the courts, and needlessly threaten the privacy of asbestos victims.” It continues, “if the President were presented with H.R.1927, his senior advisers would recommend that he veto the bill.”

Similar versions of the FACT Act legislation have been passed the House of Representatives in previous Republican-controlled sessions, including in 2013. In 2013, although the bill passed the House, it was never voted on by the Senate.

In addition, several states have proposed legislation or changes to court rules that would mandate greater transparency for trust claims. In 2012, Ohio became the first state in the nation to enact a law that requires plaintiffs to file and disclose trust claims before proceeding to trial. Arizona, Oklahoma, Tennessee, Texas, Utah, West Virginia, and Wisconsin have enacted similar laws. The American Legislative Exchange Council (“ALEC”) has a Model Asbestos Claims Transparency Act which can be found here: https://www.alec.org/model-policy/asbestos-claims-transparency-act/.

In California, trial courts in some jurisdictions require plaintiffs to disclose bankruptcy trust claims during discovery and some do not.  Plaintiff attorneys are able to game the system by filing trust claim “shells” with little or no substantive exposure information.  Another way plaintiffs avoid double-dipping is by filing bankruptcy trust claims after the lawsuit resolves.  This deprives the court of jurisdiction over defense discovery meant to uncover offsets due to trust payments.

California Assemblyman Ken Cooley (D-Rancho Cordova) introduced Assembly Bill No. 597, the Asbestos Tort Claim Trust Transparency Act, which if passed would have required asbestos plaintiffs to disclose all asbestos bankruptcy trust claim documents in asbestos tort actions. These mandated disclosures would include “any communications between the plaintiff and an asbestos trust and all proof of claims forms and supplementary or supporting materials submitted to or required by an asbestos trust.” Plaintiffs would be required to submit a sworn statement identifying the status of each claim, including all monies requested and received. Under the proposed legislation requiring such unilateral disclosures, it would have been no longer necessary for defendants to seek discovery of relevant materials regarding any claim made by plaintiffs to an asbestos trust. Any materials disclosed by plaintiffs would be potentially admissible evidence to prove alternate causation or to apportion fault for plaintiffs’ injuries. However, after a major lobbying effort by the plaintiffs’ asbestos bar, the legislation was withdrawn without a vote.

For more information on this and other asbestos-related topics, contact Sonja Blomquist at
sblomquist@lowball.com


[1] “Where are They Now, Part Six:  An Update on Developments in Asbestos-Related Bankruptcy Cases,” Mealey’s Asbestos Bankruptcy Report, Vol. 11, No. 7 (February 2012).

[2] Figures based on information gathered from Section 524(g) trust annual reports by Marc C. Scarcella and Peter R. Kelso.

[3] Estimated present value of proposed funding based on bankruptcy disclosures from W.R. Grace, Pittsburgh Corning, North American Refractories, Flintkote, Quigley, Plant Insulation, and AP Green. There are other pending 524(g) bankruptcy reorganizations currently active but no estimates of proposed trust funding has been disclosed in publically available bankruptcy documents that Marc C. Scarcella and Peter R. Kelso were able to find. The paragraph above is from “Asbestos Bankruptcy Trusts: A 2013 Overview Of Trust Assets, Compensation & Governance”  LexisNexis® Legal Newsroom Litigation (2013) by Marc C. Scarcella and Peter R. Kelso.

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