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North Carolina Bankruptcy Court Limits Garlock’s Asbestos Liabilities and Ford Wants the Court Records Unsealed

Posted in Asbestos Litigation, Litigation Trends, Toxic Tort

Court Ruling

Background: Garlock Sealing Technologies, LLC (“Garlock” or “Debtors”) filed for Chapter 11 bankruptcy protection in June 2010.  Garlock had been an active asbestos defendant for its asbestos-containing precut gaskets, sheet gasket material, and packing materials.  In January, after extensive discovery and a trial held under seal, the Bankruptcy Court issued an opinion (pdf download) in which it estimated Garlock’s liability for present and future mesothelioma claims.  The Court adopted the Debtors’ estimate of $125 million despite the $1-$1.3 billion estimate of the representatives of current and future claimants (“Claimants”).

Estimation Analysis: In the past, bankruptcy courts have taken a variety of approaches to estimating liability for present and future claims, which has led to billions of dollars being set aside for claimants in asbestos bankruptcy trusts.  Here, Debtors requested that the Court follow a “legal liability” approach, in which the merits of claims are considered and an econometric analysis is conducted to determine the likelihood of recovery.  Meanwhile, Claimants requested that the Court follow a “settlement approach” based on extrapolating data from Garlock’s past settlements in the tort system.

Before making a determination, Judge George R. Hodges allowed Garlock to conduct additional discovery in 15 cases that it settled or took to trial.  Plaintiffs in these cases were represented by 5 major asbestos plaintiff firms.  In every case, Garlock found that evidence of alternative exposure was withheld.  The Court found on average pre-settlement disclosure of exposure to 2 bankrupt entities’ products, but after settlement those same plaintiffs made claims to an average of 19 bankruptcy trusts.  The Court found several occasions when lawyers misrepresented a plaintiff’s exposure history to judges and juries only to later file claims against trusts for products to which they had previously denied exposure.  Garlock has filed civil lawsuits against several plaintiff firms based on allegations of fraud.  For more details on the allegations and related litigation see the Court’s opinion and accounts from NPR, Forbes, and BusinessWeek.

While the Court recognized a comfort in relying on settlement history to estimate liability, it found in this case a “divorce” from that process was necessary and it adopted the Debtors’ approach and estimate.  The Court determined that the Claimants’ approach did not adequately account for cases in which exposure evidence was withheld and it did not take into consideration the cost of litigation as a driving factor in settlements.  The Court concluded that Garlock’s products were made of low potency chrysotile asbestos and generally Claimants had also been exposed to more potent amphibole asbestos from other manufacturers’ products.  Based on this alternative exposure and the fact that some claimants had never been exposed to asbestos from a Garlock product, the Court concluded Garlock should be responsible only for a small percentage of each claimant’s recovery and only if exposure actually occurred.

The Court adopted the analysis of Dr. Charles E. Bates of Bates White.  It found that $25 million was a reliable estimate of Garlock’s liability to its approximately 4000 current mesothelioma claimants, which is an average of $6,000 per claimant.  The Court also determined $100 million was sufficient to cover future claims based on Dr. Bates’ analysis.  News accounts expect Claimants to challenge these rulings.

Implications: Other entities want to know more about the evidence under seal.  Legal Newsline, which is owned by the U.S. Chamber Institute for Legal Reform, has moved for access to records of the alleged fraud described in the Court’s decision under the First Amendment.  The organization wants the Court to unseal the transcripts of its trial, so it can gather information regarding the plaintiffs’ alleged conduct in those asbestos cases.  Ford Motor Company joined the request last week and claimed that it may have been induced into inflated settlements in some of the cases in which Garlock conducted additional discovery.  If the Court releases the records, it will surely offer a glimpse into the practices of the asbestos plaintiffs’ bar.