Bankruptcy Judge: Plaintiffs, Lawyers Covered Up Evidence in Garlock Meso Cases

 CHARLOTTE, N.C. — (Mealey’s) Chapter 11 debtor Garlock Sealing Technologies LLC’s total estimated liability for present and future mesothelioma claims is only $125 million, not $1.2 billion as asbestos personal injury claimants argued, because Garlock’s history of settling mesothelioma claims “was infected by the manipulation of exposure evidence by plaintiffs and their lawyers,” a North Carolina federal bankruptcy judge ruled Jan. 10 (In re:  Garlock Sealing Technologies, LLC, No. 10-31607, W.D. N.C. Bkcy.).

Bankruptcy Judge George R. Hodges further held that Garlock’s asbestos gaskets, sheet gasket material and packing products “resulted in a relatively low exposure to asbestos to a limited population and that its legal responsibility for causing mesothelioma is relatively de minimus.”

Opposing Methodologies

Garlock filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code in 2010 in the U.S. Bankruptcy Court for the Western District of North Carolina due to an estimated 100,000 asbestos personal injury claims — including more than 4,000 mesothelioma claims — pending against the company.

At the trial to estimate Garlock’s liability for the pending mesothelioma claims and such claims that may be asserted in the coming years, held in July and August 2013, Garlock and asbestos claimants represented by the Official Committee of Asbestos Personal Injury Claimants and the future claimants’ representative (FCR) presented cases based on opposing methodologies used by their experts to estimate Garlock’s liability.

Garlock and its expert, Charles E. Bates, argued that the debtor’s aggregate liability for mesothelioma claims is not more than $125 million based on limited exposure to asbestos from Garlock’s products and inflated settlements in the tort system, while the Official Committee and FCR and their experts, Mark A. Peterson and Francine F. Rabinovitz, said Garlock should pay more than $1.2 billion for mesothelioma claims based on the debtor’s settlement history.

In the asbestos bankruptcy case of Specialty Products Holding Corp. and subsidiary Bondex International Inc., a U.S. bankruptcy judge in the District of Delaware in May rejected Bates’ theories and estimated the debtors’ liability at $1.16 billion (In re:  Specialty Products Holding Corp., et al., No. 10-11780, D. Del. Bkcy.; 2013 Bankr. LEXIS 2051; See May 2013, Page 4) [an enhanced version of this opinion is available to lexis.com subscribers]. The ruling is under appeal.

‘Suppression Of Evidence’

In Garlock’s case, Bankruptcy Judge Hodges agreed with the debtor and Bates on all of their arguments, saying that Garlock’s past settlement history cannot be used to estimate its liability for present and future mesothelioma claims, the method used in Specialty Products and other asbestos bankruptcy cases.

“The estimates of Garlock’s aggregate liability that are based on its historic settlement values are not reliable because those values are infected with the impropriety of some law firms and inflated by the cost of defense,” the judge said. “The best evidence of Garlock’s aggregate responsibility is the projection of its legal liability that takes into consideration causation, limited exposure and the contribution of exposures to other products.”

Bankruptcy Judge Hodges said that according to evidence obtained by Garlock in discovery through personal injury questionnaires, some asbestos claimants and their lawyers covered up evidence of the claimants’ exposures to other asbestos manufacturers’ products to obtain large settlements from Garlock in the tort system. With settlements in hand, the claimants and their attorneys then filed claims against trusts in other asbestos bankruptcy cases, the judge said.

Bankruptcy Judge Hodges said that “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 the tort case, but then later (and in some cases previously) to be able to identify it in Trust claims. It is that practice that prejudiced Garlock in the tort system — and makes its settlement history an unreliable predictor of its true liability.”

15 Settlement Cases

The judge said Garlock presented substantial evidence of plaintiffs and their law firms withholding exposure evidence in all 15 settlement cases in which Garlock was permitted to seek full discovery. On average, the judge said, plaintiffs in the 15 cases disclosed only about two exposures to bankruptcy companies’ products, but after settling with Garlock, made claims against about 19 such companies’ trusts.

In one such case, the evidence showed that a former Navy machinist who won a $9 million damages verdict against Garlock in California denied any exposure to asbestos insulation at trial, including products made by Pittsburgh Corning Corp., went on to file claims against 14 asbestos trust, including several against insulation manufacturers, and had actually cast a ballot in Pittsburgh Corning’s bankruptcy case certifying that he had been exposed to that company’s asbestos insulation, Bankruptcy Judge Hodges said.

“These fifteen cases are just a minute portion of the thousands that were resolved by Garlock in the tort system. And they are not purported to be a random or representative sample. But, the fact that each and every one of them contains such demonstrable misrepresentation is surprising and persuasive,” the judge said. “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.”

Fraud Allegations

Bankruptcy Judge Hodges said that further evidence of this “startling pattern of misrepresentation” was shown in a statement made by one plaintiff’s attorney that the judge described as showing “seemingly some perverted ethical duty”: “My duty to these clients is to maximize their recovery, okay, and the best way for me to maximize their recovery is to proceed against solvent viable non-bankrupt defendants first, and then, if appropriate, to proceed against bankrupt companies.”

Also, the judge reported, a national plaintiffs’ law firm published a 23-page set of directions for instructing their clients on how to testify in discovery.

On Friday, Garlock filed under seal four lawsuits in the bankruptcy court against several law firms, attorneys and their clients, alleging conspiracy, fraud and violations of the Racketeer Influenced and Corrupt Organizations Act involving actions filed in the tort system against Garlock before it filed for bankruptcy. In a fifth case, Bankruptcy Judge Hodges in September denied summary judgment to an attorney and law firm accused by Garlock of fraudulently obtaining a settlement from Garlock for a mesothelioma victim (Garlock Sealing Technologies, LLC, et al. v. Chandler, et al., No. 12-03137, W.D. N.C. Bkcy.; See September 2013, Page 19).

‘Bucket Of Water’

Bankruptcy Judge Hodges also agreed with Garlock on its exposure evidence, saying the “snowstorm” of asbestos dust caused by the removal of thermal insulation in maritime, refinery and other industrial applications presented a much higher exposure of asbestos fibers to workers than the gasket products manufactured and sold by Garlock.

The judge quoted Moeller v. Garlock Sealing Techs., LLC, 660 F.3d 950, 954-55 (6th Cir. 2011) [enhanced version], in which the Sixth Circuit U.S. Court of Appeals compared a pipefitter’s exposure to asbestos gaskets and insulation as a “bucket of water” would be to the “ocean’s volume.”

U.S. Chamber

The U.S. Chamber of Commerce issued a news release Friday, saying Bankruptcy Judge Hodges’ decision “is a watershed in exposing asbestos litigation ‘impropriety.’”

“Fraud and abuse have plagued asbestos litigation for decades, as today’s order by Judge Hodges makes clear. Plaintiffs’ lawyers are manipulating and withholding evidence, and Judge Hodges recognizes that this is ‘a regular practice by many plaintiffs’ firms,’” Lisa A. Rickard, president of the U.S. Chamber Institute for Legal Reform, said in the release.

“The Garlock bankruptcy order underscores the need for federal and state legislation to rein in asbestos litigation abuse. Because, as Judge Hodges states:  ‘It appears certain that more extensive discovery would show more extensive abuse.’”

Counsel

Garlock is represented by Garland S. Cassada, Jonathan C. Krisko and Richard C. Worf Jr. of Robinson Bradshaw & Hinson in Charlotte and Cary Schachter and Raymond P. Harris Jr. of Schachter Harris in Dallas.

The Official Committee is represented by Trevor W. Swett III, Leslie M. Kelleher and James P. Wehner of Caplin & Drysdale in Washington, D.C.; Elihu Inselbuch of the firm’s New York office; Travis W. Moon of Moon Wright & Houston in Charlotte; Scott L. Frost of Waters Kraus & Paul in El Segundo, Calif.; and Nathan D. Finch of Motley Rice in Washington.

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