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

Congress

The House of Representatives subcommittee on Regulatory Reform, Commercial and Antitrust Law is currently considering the “Furthering Asbestos Claims Transparency (FACT) Act.”   The bipartisan legislation, introduced by Representatives Blake Farenthold (R-TX) and Jim Matheson (D-UT), aims to bring transparency to federal asbestos bankruptcy trusts. Bill H.R. 982 would require federal asbestos bankruptcy trusts to file quarterly reports concerning claims and other activities with bankruptcy courts. Supporters of the bill state that rooting out fraud and abuse of the asbestos bankruptcy trust system protects the “real victims who desperately need help.”

The “Fact Act” would amend the federal bankruptcy law to require federal asbestos bankruptcy trusts to publicly disclose quarterly reports that contain detailed information regarding the receipt of claims for asbestos-related injuries. The reports would include information regarding the name and exposure history of the claimant, and the basis for any payment made from the trust to the claimant.  The Fact Act would, however, protect disclosure of any confidential medical records and the claimant’s full social security number.

Passage of the Fact Act will better allow defendants to properly assess a plaintiff’s complete exposure history.  Peggy L. Ableman, a retired asbestos trial judge, testified that defendants are “often led to believe – erroneously – that their products were far more responsible for the plaintiff’s disease than what may have been the case, because they have no way of knowing the substance of an individual plaintiff’s claims.” Id (link above).  Having the knowledge of a plaintiff’s complete exposure history will allow defendants to more effectively defend themselves against misleading or erroneous evidence of the potential cause of a plaintiff’s disease.

As asbestos liabilities force more companies to file for bankruptcy, lawmakers are focused on preserving funds for “legitimate victims.” The concern is that secrecy and abuse by claimant’s lawyers undermine the original purpose of the trusts.

“The trust fund system originated to resolve present and future asbestos injury claims for victims deserving of compensation…Unfortunately, the system is susceptible to abuse and payment of fraudulent claims to the detriment of legitimate claimants. This legislation’s transparency measures will protect claimants’ confidentiality while ensuring the continued viability of the asbestos trust fund system.”

The concern over fraudulent asbestos trust activity was recently highlighted in a Wall Street Journal article, which reported discrepancies between claims made to the trusts and claims in state lawsuits. Concerns about fraud with regard to asbestos bankruptcy trusts is not new.  In fact, a similar bill introduced in 2012, never made it out of the Subcommittee on Courts, Commercial and Administrative Law for consideration. We will continue to keep our readers posted on the Fact Act of 2013 to see if this version of the bill can gain any traction among lawmakers.
Continue Reading Getting the Facts: House Considers the “Furthering Asbestos Claims Transparency (FACT) Act” of 2013

Congress

Recently, the Subcommittee on Courts, Commercial and Administrative Law of the U.S. House Judiciary Committee, held a hearing on an important new bill aimed at furthering transparency in asbestos bankruptcy trusts.  Proponents of the controversial new bill, entitled H.R. 4369, the “Furthering Asbestos Claim Transparency Act (FACT) Act of 2012,” say that it would shed some much-needed light on the secretive claims processes of the bankruptcy trusts.

Asbestos-related liabilities have plagued hundreds of corporate defendants over the past twenty-plus years. Many have sought protection under Chapter 11 of the U.S. Bankruptcy Code.  Section 524(g) of that Chapter allows a debtor company to channel asbestos claims to a trust set up for the purpose of paying those claims.  Pursuant to that Section, the trust assumes the asbestos liabilities and the debtor’s assets are transferred to the trust, which then pays the asbestos-related claims.  The debtor company is thus relieved of all present and future asbestos-related liabilities.  See GAO-11-819, at 2-3 (2011), Report of theU.S. Government Accountability Office to the Chairman, Committee on the Judiciary, House of Representatives: Asbestos Injury Compensation; The Role and Administration of Asbestos Trusts, (pdf download). The problem, according to proponents of H.R. 4369, is that the claims process is a private, non-adversarial administrative process, and is shielded from public scrutiny by complex “trust distribution procedures,” or “TDPs.” Marc Scarcella, an economist at Bates White, LLC, testified in support of the bill.  Mr. Scarcella addressed concerns about the lack of mechanisms to cross-check trust claims against claims made to other trusts or in the tort system:

“lack of transparency and accountability may incentivize specious and inconsistent claiming across the tort and trust systems” and “may result in trust funds being depleted by erroneous payments.”  Hearing Before the H. Jud. Comm. Subcomm. On Courts, Commercial and Administrative Law, 112th Cong. (2011-2012) (statement of Marc Scarcella, Bates White, LLC).  H.R. 4369 would preclude such misuse by requiring each trust to file quarterly reports which disclose: (i) who has filed a claim against the trust; and (ii) the asbestos exposures alleged by each claimant.  See id.

The lone opponent of H.R. 4369 at the hearing was plaintiffs’ attorney Charles Siegel of Waters & Kraus LLP.  Attorney Siegal testified that the legislation “would place new burdens on trusts … but would only serve solvent defendants’ interests.”  Mr. Scarcella addressed these concerns, however, by stating that the new transparency considerations would benefit everyone involved, particularly future claimants.  Moreover, he testified that the reporting would not burden the trusts because the claims administration process is controlled electronically.

Concerns about asbestos bankruptcy trusts is not new. There are legislative efforts at reform underway in several states, including Ohio, Lousiana, and Texas, to name but a few.  The fact that the issue has finally made its way before the U.S. Congress is heartening, but there is a long way to go.  The bill in its current form does not appear to address the filing of


Continue Reading Shed a Little Light: Congressional Hearing on Asbestos Bankruptcy Trusts Promises Much-Needed Transparency