Asbestos Claims Transparency Act

The federal Bankruptcy Code allows companies in bankruptcy proceedings to establish asbestos bankruptcy trusts, in which assets are set aside for the benefit of future claimants whose specific identity is unknown at the time of the bankruptcy. So-called “double dipping” can occur when a plaintiff seeks recovery from an asbestos bankruptcy trust without disclosing that recovery in litigation against other defendants.  Recent legislative amendments in Michigan will make it more difficult for individuals to engage in double dipping.

On February 8, 2018, the Michigan State Legislature passed House Bill 5456, which amended the Revised Judicature Act by adding the Asbestos Bankruptcy Trust Claims Transparency Act (the “Transparency Act”).  Currently, a plaintiff seeking compensation for asbestos exposure may seek redress in two ways: by filing a complaint in court, and by filing a claim against an asbestos bankruptcy trust.  To date, there are approximately 60 asbestos bankruptcy trusts in the United States with assets approaching $25 billion, which have been established for the sole purpose of paying asbestos-related personal injury claims.  Although the Transparency Act does not eliminate a plaintiff’s ability to seek compensation from both the trusts rand litigation, it imposes disclosure requirements to prevent a plaintiff from “double-dipping.”  Thus, under the Transparency Act, any compensation received from an asbestos trust will be credited against any judgment in the plaintiff’s favor.

Pursuant to the Transparency Act, a plaintiff in an asbestos action must, within 30 days after filing an action, provide a signed statement, under penalty of perjury, attesting that any and all potential asbestos trust claims that could be filed, have been filed.  In addition, a plaintiff must provide—to all parties—all trust claim materials,[1] including those that relate to conditions other than those that are the basis for the asbestos action.  Finally, if the plaintiff’s asbestos trust claim is based on secondary exposure through another individual, he or she must submit all trust claim materials submitted by the other individual.

The Transparency Act affirmatively requires a plaintiff to provide up-to-date trust claim materials, and it also provides defendants with tools to deter a plaintiff from failing to comply with her disclosure obligations.  A defendant in an asbestos action now has the ability to request a 60-day stay, if the defendant identifies an asbestos trust claim that a plaintiff has failed to disclose to the parties, and the defendant believes the claim should have been identified.  After a motion to stay the matter has been filed, the burden to lift the stay shifts to the plaintiff, who may respond in one of three ways: file the asbestos trust claim; file a response stating that there is insufficient evidence for the plaintiff to file the asbestos trust claim; or request a determination from the court that the costs to file the asbestos trust claim would outweigh the expected recovery.

The Transparency Act also provides safeguards for those scenarios in which a plaintiff first obtains a judgment in an asbestos action and then files an asbestos trust claim that was already
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As previously reported on Defense Litigation Insider, the United States House of Representatives is presently considering the “Furthering Asbestos Claims Transparency (FACT) Act.” (H.R. 982) Since our last report, the bill was approved by the House Judiciary Committee by a 17-14 vote despite efforts to amend its original form.

The bill, introduced by Rep. Blake Farenthold (R-TX) and co-sponsored by Rep. Jim Matheson (D-UT), would require asbestos bankruptcy trusts to file publicly available reports that include demands made against the trusts as well as the names and exposure history of the claimants. Although Congress tracking website, govtrack.us, projects that the bill has only a 14 percent chance of passing, defense attorneys in many jurisdictions can still take steps to pursue the information during litigation.

Bankruptcy claim information is helpful to defense attorneys because, often, plaintiffs in litigation against non-bankrupt asbestos defendants conceal claims made against bankruptcy trusts in an effort to obtain “double compensation.” In many jurisdictions, relief afforded by a bankruptcy trust, if known, would reduce the liability exposure to the non-bankrupt asbestos defendants.

Some jurisdictions have attempted to eliminate the possibility of fraud, abuse, and double compensation legislatively or by judicial order. An Ohio statute, for instance, requires disclosure of bankruptcy claim information. In Delaware, a standing case management order of the Superior Court likewise calls for asbestos plaintiffs to identify bankruptcy trust claims.

If a given jurisdiction does not have a legislative remedy available, many state and federal courts have held that bankruptcy trust claim information is available through discovery. This discovery might include claim forms, which occasionally contain factual allegations that are inconsistent with the plaintiff’s pleadings. The Eastern District of Pennsylvania, home of federal multi-district litigation, has allowed such discovery. So, too, has the State of California.

Conclusion

Defense attorneys must be vigilant in protecting their clients from increased exposure as a result of concealed asbestos claims. Until a national solution is in place, defense attorneys can likely stay on guard of potential double compensation scenarios through focused discovery and subpoena practice.
Continue Reading Furthering Asbestos Claims Transparency Act: Discovery of Bankruptcy Claim Information to Avoid Double Compensation