Trouble Spot Centers on Transparency, Trusts and the Tort System

By Tom Hagy*

Perhaps the starkest difference between asbestos litigation 10 years ago and today – and probably the most difficult to untangle – is the proliferation of asbestos bankruptcy trusts overseen at the federal level and the amount of money being paid to injured plaintiffs apart from what they receive in the predominantly state-based tort system. When the bankruptcies occurred, those companies disappeared from the underlying litigation and the remaining solvent defendants were required to pick up their liability share.

It is not shocking that so many of the companies actually responsible for the epidemic of asbestos disease are in bankruptcy. “What is shocking,” according to Joseph J. O’Hara, Jr., Vice President and Associate General Counsel of Owens-Illinois Inc., “is that now that the bankruptcy trusts are up and running, paying out billions of dollars to asbestos claimants, the financial demands on the solvent defendants have not changed.”

Where O’Hara says the bankruptcy money “seems to change hands in the dark of night,” people like plaintiff attorney John Cooney of Cooney & Conway say defendants’ complaints about the trust system are just meant to “create perhaps a little mischief.”

O’Hara is one of three chairmen of our upcoming National Asbestos Litigation Conference, set for Sept. 23-25, 2009, at The Four Seasons Hotel in San Francisco. He will we joined by Joseph W. Belluck of Belluck & Fox and Michael J. Pietrykowski of Gordon & Rees. You can find more info, including the chairmen’s mission statement, by clicking HERE.  Cooney was one of the chairmen of HB’s Emerging Asbestos Litigation Conference held in Beverly Hills in March 2009.

The problem that O’Hara and others on the defense side claim is that the federal bankruptcy trusts are designed to make it hard for the tort system to track the bankruptcy trusts payments and the product exposure evidence upon which those amounts are based. “The bankruptcy rules, drafted by committees of plaintiffs’ lawyers,” O’Hara says, “declare trust submissions alleging exposure to the bankrupt’s asbestos products ‘confidential’ and immune from discovery. These same rules also encourage delay of trust claims while the tort case proceeds.”

“Without a requirement requiring claimants to declare what they are actually getting and likely to get, there is potential for double-dipping,” O’Hara says. The two systems – bankruptcy courts and state courts – are not operating in sync or with the same goals. He said, “state court judges need to know what’s going on in the trust side.” There are nearly 50 asbestos trusts with as much as $40 billion set aside for victims. “The tort system needs to account for this enormous amount of money that will be paid for asbestos injuries by the trusts.”

If you want to see how much passion there is behind this on the defense side, see what prominent defense lawyer Larry Cetrulo of Cetrulo & Capone, who spoke at our March asbestos conference, had to say.

“The reward that we’ve gotten for care-tending the scarce resources of our clients,” Cetrulo argued, “is to be the last person standing at the end of the day while the people who didn’t know how to shepherd their resources scurried into bankruptcy – and we’re left standing holding the liability.”

He went on to say, poking a finger into the speakers’ table so hard it left a dent (no it didn’t, but it makes for good story tellin’), that there is no transparency in what claimants are receiving. “There isn’t transparency in seeking a merits-based valuation system. When you’re looking to pay 100 cents on the dollar on true value, if you don’t know what the bankruptcy trusts are paying, you don’t know what the product identification is there, you don’t know what their share of liability is, and this isn’t even getting to the causation issue . . . those issues are important in a merits-based system . . . Where I believe most of the plaintiffs’ attorneys are coming from is a risk-based valuation system which unfairly exempts the bankruptcy trusts . . .”

To see Cetrulo for yourself, click here: Lawrence Cetrulo on the Fairness of Asbestos Claim Valuations.  (Note:  We’ve pick Cetrulo to chair our first 2010 asbestos conference.)

O’Hara told me that the sole purpose of the bankruptcy trusts is to pay compensation to asbestos plaintiffs for the same indivisible injury that is the basis for their tort claim. “They [the trusts] are open for business,” O’Hara said, “and their job is to pay the claims. The money is there to be moved. It is moving, but the lack of disclosure requirements and the timing of the trust payments can prevent those payments from being accounted for in the tort system.”

We’re not talking chump-change here. The tort system is already paying out several BILLION dollars a year on the mesothelioma claims, and the trust system is paying ANOTHER billion on those claims.

“We have duel compensation systems working blind to each other,” O’Hara said, “even though all the money is moving for the exact same injuries.”

Defendants raise the issue that plaintiffs can strategically sequence their claims in a way to get higher combined payouts from the two systems and often don’t reveal what amounts they are getting and are likely to get from each and all the trusts. O’Hara argues that “lawyers on both sides of the aisle need to work with the courts to make the trust payments visible and provide proper credits and set offs for such payments in the tort system.”

Plaintiff Attorneys See It a Tad Differently

No one gets more passionate in response to defense criticism of the failure to sync the trust and tort systems than well-known plaintiff attorney John Cooney of Cooney & Conway. Speaking at our conference back in March 2009, Cooney said claims that plaintiffs need to reveal what they’re getting paid and sequence their claims were “specious” arguments falsely dressed up in a cloak of fairness.

Cooney said that when a plaintiff applies to a trust and recovers money, defense attorneys want it done in a way that helps their clients. Cooney said, speaking from the claimant’s perspective, “Why would I sequence my claims so I can help the companies that poisoned me?”

Cooney also lobs the “secrecy” attack back at the defendants: “When I settle with [most defendants], they ask me to keep the amounts secret. If I tell anyone what [that defendant] paid, I’d be in court, probably under a contempt citation. So,” he said sardonically, “secrecy is good for defendants in some situations, but not in others. I’ve got a problem with that.”

Cooney hears some defense attorneys argue that they should have standing to come to a bankruptcy court so they can “ask a few questions.” “Sure,” he said, “that sounds like good ol’ ‘street justice’” – except that without a judgment against it, that defendant is not a judgment creditor. “If he had a verdict against him, then he’d have a point. But that isn’t what he wants to do. He wants to come in and say, ‘You know what, I really want to settle this poor man’s mesothelioma cases, but I’d like to do it with someone else’s money.’” If a verdict is taken, then Cooney agreed that a defendant has a place at the table in bankruptcy court. Otherwise, Cooney thinks the answer to that defendant is it’s “none of your business.”

“The claim that ‘the tort system doesn’t account for the bankruptcy money,’ I think is specious,” Cooney continued. The tort system does not always work the way a particular defendant would like it to work. The tort system does not always work for a particular plaintiff. The tort system is what it is.” What Cooney doesn’t accept is that the defendants are doing this out of any “overarching sense of fairness.” “This is just advocacy, and it needs to be identified as advocacy.”

And it is advocacy that both plaintiff and defense lawyers in this massive litigation do extremely well. So now what? I spoke to Michael J. Pietrykowski of Gordon & Rees. See my next post for his thoughts.

* Hagy is president of HB Litigation Conferences LLC. He was once publisher and managing editor at Mealey Publications, and was a contributing editor for Mealey’s Litigation Report: Asbestos (now published by LexisNexis) and before that the Asbestos Litigation Reporter (now published by Thompson West).